ECB legitimate worry about governance : an open letter to Danièle Nouy

by Pierre-Henri Leroy , chairman, Proxinvest

While the future of Deutsche Bank worries the ECB following the departure of the CEO John Cryan replaced by Christian Sewing, Société Générale must seek a new Deputy CEO to replace Didier Valet.

Société Générale, after its participation in the rigging of the Libor rate between 2007 and 2009 earned it a sentence transacted for nearly a billion euros in May 2017, added three other concerns, a violation of the US embargo on Cuba revealed by Le Monde in 2014, still unpaid,, and a charge for fraud at the expense of the Lybian LIA fund and cheating on its refinancing rate as transmitted between May 2010 and October 2011 by its Finance Department to the Libor rate manager Thomson-Reuters…

“Negligible, peanuts, trifle , bagatelle” some will say: “our European banks are solid and irreproachable”. “Although the financial impact of litigation can not be determined with certainty, the bank has in its accounts as of December 31, 2017 a litigation provision of € 2.3 billion in accordance with IFRS. Within this provision, approximately 1 billion euro equivalent is allocated to IBOR and LIA. ” indicated Société Générale.

The bank also confusedly admitted this March 15, 2018 that the US Justice Department had requested the resignation the Deputy CEO of the Société Générale, Didier Valet, until then likely successor of President Frédéric Oudéa and, like the latter, former CFO of the group … The “survival lies” of the bank between 2008 and 2011 in the turmoil of subprime business and Kerviel case, allows as suggested by the bank for “differences of appreciation” … Dura lex sed lex”, nothing will do, it is neither legal, nor cautious, nor undoubtedly moral, to save his bank and his bonus by abusing colleagues, customers and depositors …

Our European Central Bank, which seems satisfied with the universal banking model from the point of view of systemic risk, is rightly concerned about the governance of our banks.

This is good time since bank remunerations are expected to explode for 2017 : Deutsche Bank has paid bonuses for a total amount of 2.3 billion euros for 2017, four times more than the previous year, despite a new year of loss. net profit, amounting to 751 million euros. Ironically, the top executives of Deutsche Bank, will have no bonus, except the departed CEO who leaves with 8.7 million euros including retirement, after three years of losses in a row and a annual salary of 3.4 million euros … It is true that the stock price of Deutsche Bank has fallen 60% for five years, while the stacking of its risks worries the interbank market … Several other large European bankers will personally exceed EUR 10 million in revenue, and the ECB may legitimately, as it says , “ worry that bankers are taking undue risks to earn more.” last news is that following Mr. Cryan’s firing a handful of Deutsche Bank top executives in Frankfurt and London decided to quit.

It is up to the shareholders of these banks to question these remunerations, but it is also up to French and European regulators and politicians to question the origin of so easy wealth of bankers.

The market activities of universal banks such as Deutsche Bank and Société Générale are based on the low weighted credit cost granted by the explicit and implicit guarantee of the States, a guarantee clearly undue since most of these transactions, especially when they do not relate to exchange rates or interest rates, have little or nothing to do with the funding of the economy. A surrealistic paradox is that, following the Moscovici law in France, the speculative operations for the French banks’ own account, those that generate these risky profits, should have been, according to the law, confined to a wholly-owned subsidiary of their group: a regulatory comedy that our bankers do not even bother to play! In fact, our government and deputies have enabled the big banks, under this perfect parliamentary hoax, to keep fully their speculative trades under the invaluable guarantee of all taxpayers. In this lax general framework, which we owe to the mediocrity of successive policies, the European Central Bank is satisfied with the tools at its disposal: the stress tests on the declared risks on the one hand and the incantation to the best governance on the boards of directors of banks on the other hand.

Mrs. Nouy even tells us that her services are capable of appreciating the independence of mind of the directors in their assessments of supervised banks … “We recommend independence of mind in our fit and proper assessments, for instance. As part of the ongoing supervisory dialogue, we also assess whether a bank’s internal governance and risk culture are most relevant to such independence. ”

Let us wish you good luck!

It is touching to observe the persistent faith of the supervisors – is this naivety or cynicism? – in the highest skill and the highest integrity of the bank directors to limit the crises produced by the very complex structures of these financial groups.

But, Madam, it is simply the underlying model that produces this uncontrollable explosive mixture of conflicts of interest and greed. The example of the very serious involvement at various levels of BNP Paribas in the formidable fraud Madoff, even though at several levels of the same group was shouting “wolf”, demonstrates the unmanageable nature of universal banks. Neither the best governance in the world, nor the intellectual capacity of the best French Polytechniciens and Inspecteurs des finances, nor the personal involvement of the most honest of them will do anything about it.

Certainly, the ECB is pushing here excellent governance ideas such as more direct contact between the directors of each bank and the control and credit functions, the alignment of remuneration with the “risk appetite” framework. “-, on better data quality and systematic aggregation of risks.

The ECB tells us that the current challenges for the banking world of declining profits, the development of new technologies and the new competition are testing the banks’ governance framework. “These current challenges put governance frameworks to the test.”

But is not this a serious error of analysis on the part of the supervisor? Is it not rather the internal model of universal banks, based on conflicts of interest, free fuel fo trading and unfair competition, which limits the effect of better governance efforts?

You concluded your presentation on the seriousness and the severity of the ECB’s risk-based mission for European banks, including numerous and costly aspects, such as the dialogue between supervisors, on-site inspections, thematic missions and deep-sea dives “, the use of the STAR portal for stress tests, and finally the severe process of authorizing new entrants …

But how will we be reassured?

Certainly governments have buried in recent years any challenge to this inefficient, explosive and unfair banking system. But it belongs to supervisors of central banks and other market regulators to question the general banking framework: Benoit Coeuré, member of the Executive Board of the European Central Bank, did in the past question the bank universal banking model.

Madam, as ​​supreme European supervisor you wisely ask banks’ boards of directors “to maintain a culture of debate that values ​​the diversity of points of view”.

Is it not, Madam, the opportunity to debate at the level of the ECB the impact of a virtually zero credit cost for interbank speculation in Europe?

Alexandre Ricard, scion of the Ricard Family, took to the stage in his capacity as Chairman and CEO to profusely thank his employees for achieving growth, year after year, reflecting the company’s expanding footprint in its key growth markets (US, China, India…). The crowd was regaled with impressive tales of organic growth, cash flow generation, and debt reduction; staples of a conventional AGM. The results, however, belied a track record of chronic underperformance (on notable operational metrics) vis-à-vis market leader Diageo Plc and the failure to uphold corporate governance best practices. Time and again, Proxinvest has publicly spoken out against the company’s practice of combining the CEO and Chairman positions (since 2015), the disproportionate number of Board seats held by its largest shareholders, and most importantly, its use of double voting rights with excessive terms (after a 10-year holding period). Unsurprisingly, this has made the maker of the famed eponymous pasitis one of the least shareholder-friendly companies in the CAC 40.

Phitrust Active Investors, an open-ended mutual fund (société d’investissement à capital variable, or SICAV) shared our concerns. Pernod Ricard nevertheless was unequivocal in its response to several written questions addressed by the fund to its top brass: double voting rights are an appropriate tool to promote shareholder loyalty. Not to dwell on the subject of shareholder loyalty which, as demonstrated by several practioners, can be achieved through other means, the company’s purported rationale ignores a key category of long-term shareholders: holders of bearer shares who are denied double voting rights irrespective of their holding period.

Making matters worse, neither the over-representation of the two largetst shareholders (Ricard Family and Groupe Bruxelles Lambert), nor the combined Chairman-CEO position were deemed as governance issues by the Board. Whereas the Ricard Family shareholder pact holds almost 15% of shares, it controls 36% of Board seats. The Board’s justification that directors represent all shareholders regardless of family affiliation, essentially a regurgitation of a director’s legal responsibility, is as disconcerting as it is unconvincing.

Fortunately, a sizable number of shareholders heeded our concerns. Case in point were the re-elections of Veronica Vargas, a great granddaughter of company founder Paul Ricard, and Paul Ricard SA (largest member of the aforementioned shareholder pact, represented by Paul-Charles Ricard, another third-generation descendant of the founder) which received opposition rates of 18.11% and 11% respectively.

Shareholders should further note that Veronica Vargas was identified as a related party in the Statutory Auditor’s Special Report on Regulated Agreements and Commitments with Related Parties due to her employment at Société Générale Corporate & Investment Banking (SG CIB). The bank provided financing as part of its regulated agreement with the company, and yet, contrary to the spirit of the law, the report failed to disclose the interest paid for such financing. However, Deloitte and KPMG, the company’s auditors who are ultimately responsible for the disclosure of such crucial details, were not sanctioned by shareholders.

No true AGM tale is complete without addressing one of the most headline-grabbing topics on the agenda: executive compensation. In a rare departure from the norm, Pernod Ricard failed to disclose all the components of Alexandre Ricard’s compensation in the standard overview table typically found in a French company’s reference document. Notably absent from said table was a sum to the tune of €2.7M awarded to the company chief to compensate him for forgoing his rights to a “Top Hat” pension plan. Once taken into account, this payment would increase Alexandre Ricard’s total compensation to €6.3M. Notwithstanding this adjustment, the orginial total compensation of €3.6M was deemed excessive in so far as alignment with performance is concerned. Shareholders were regrettably unfazed: 97% of them voted to approve the “Say on Pay” resolution.

11 November 2017

Today’s Environmental & Social challenges are intrinsically linked

by Olivier de Guerre & Denis Branche

Following the signature of the Paris Climate Agreement in 2015, the 196 signatory countries are in Bonn, Germany, attending the COP23 UN Climate Change Conference presided by the Fiji Islands, one of the smallest countries of the Pacific that is severely concerned by the threat of rising sea levels. Fiji is issuing a warning on the urgency of climate change and has the objective of bringing concrete goals against global warming from this accord. The Paris Climate Agreement has been ratified by 168 countries, including the 28 member states of the European Union. The countries having ratified this accord represent cumulatively 84% of global emissions. According to the United Nations Environmental Program (UNEP), we are heading towards a trajectory where global warming will lead us 3°C above pre-industrial times if signatory countries do not respect their climate goals. The Paris Climate Agreement sets a goal of limiting global warming to “well below” 2°C above pre-industrial times, and ideally to 1.5°C.

Fiji’s Prime Minister Frank Bainimarama, presiding at the Bonn talks, has declared that “The human suffering caused by intensifying hurricanes, wildfires, droughts, floods and threats to food security caused by climate change means there is no time to waste.”

During this week, delegates are working to apply the 2016 Paris Climate Agreement, with one of the primary goals being ending the use of fossil fuels for energy production in the 21st century and switching to clean, renewable energies, such as wind and solar power. According to the International Energy Agency (IEA), coal power still represents a third of today’s global energy production.

The latest report by the NGO Oxfam, ‘Uprooted by climate change: responding to the growing risk of displacement’[1], analyses how of low income individuals are on average five times more likely to be displaced due to natural disasters caused by climate change than high income populations. The report estimates that 14 million individuals in the world’s poorest countries have been displaced, compared to 1 million in developed countries,. Extreme inequality towards climate change affects the most deprived and powerless populations, who are rarely the biggest polluters. Low income individuals, especially women, children and indigenous people are often the most vulnerable to natural disasters. The recent hurricanes in the Caribbean and in the United States have reminded us the extent to which these extreme natural events, amplified by global warming, have such destructive powers.

Despite these observations, this COP23 will be complicated as the newly elected President of the United States, Donald Trump, declared in June this year, his willingness to pull out of the Paris Climate Agreement. The American president wishes to revive domestic coal and shale oil production. However, the United States’ formal pull out of this accord, which President Obama made sure to ratify before the end of his mandate, will not be effective before November 2020, which is at the time of the next US presidential elections. In addition, the American delegacy in Bonn will be represented by Thomas Shannon, a diplomat who declared that climate change is “one of the world’s most important challenges”.

Phitrust is following the discussions taking place at the COP23. Indeed, in our minds, we consider that it is possible to finance innovative projects that are able to reduce pollution, and decarbonize the economy, while also sustaining vulnerable communities by creating jobs, developing skills and training, and rehabilitating individuals that have been excluded by society because of long-term unemployment or personal difficulties. Within the European Union, we can reduce our impact on climate change by investing in those companies that are committed to reducing their negative effect on the environment. Tackling climate change offers an opportunity to create sustainable long-term jobs which will contribute to making our planet a better place in a nearby future. It is therefore necessary to develop tomorrow’s solutions to offer a better world for future generations.

More generally, observers and investors questioned why this marriage was not subject to a shareholder vote. Indeed, in French Law, despite the significant change in Vivendi assets, shareholders are not invited to vote as long as the acquisition is paid in cash (no issuance of new shares). In 2015, the French Financial Authority (AMF) launched a consultation on the sales of assets and it was recommended to hold a consultative vote in such asset sale if the assets are deemed significant (>50%). Proxinvest recommended and still recommends to align the French rules with the UK Premium listing rules and that accordingly a binding vote of the general meeting of shareholders occurs before the adoption of any sale or acquisition of a significant asset. In such vote, a shareholder being a related-party involved in the transaction should not take part to the vote.

24 July 2017

The New Duty to Declare Beneficial Ownership under French Corporate Law

As of August 1st, 2017, companies newly created in France will need to declare the identity of their beneficial owners. For existing companies, the same information will have to be provided prior to April 1st, 2018.

The new French rules are provided for in Decree No. 2017-1094 dated June 12, 2017 (published on June 14 – the "Decree").

The Targets of the New Rules and the Notion of Beneficial Ownership

The new rules apply to non-listed companies incorporated in France. They also apply to commercial companies headquartered outside of France but having an establishment in France subject to registration.

The legal entities falling within the scope of the new duty must obtain the required information on their beneficial owner(s), disclose the information, keep the information up-to-date, monitor any change and update, as appropriate, any disclosure made.

The beneficial owner of a company is usually understood as the individual(s) who own(s) directly or indirectly more than 25% of the share capital or voting rights of the company, or exercise, by any other means, a supervisory power over managing, administrative or executive bodies of the company or over the general meeting of the shareholders. The Decree is unclear as to how to compute indirect control rights. For example, in the case of Mr. X owning 100% of the share capital of company A, itself owning 60% of company B which owns 30% of company C, is Mr. X the beneficial owner of company C or should Mr. X be treated as having a (100% X 60% X 30%) 18% interest in company C? Prudence would recommend considering Mr. X as a beneficial owner of Company C but the issue is debated.

Also, one may wisely integrate the fact that the 25% threshold derives from the Directive (EU) 2015/849 of May 20, 2015 and that the EU Commission is working on a new version of the Directive contemplating a 10% threshold.

The Filing Procedural Requirements

The CEO of the legal entity subject to the new rules shall file with the clerk of the Commercial Tribunal where the company is registered a document to be attached to the Trade and Companies Register (Registre du commerce et des sociétés), identifying its individual beneficial owner(s).

The document filed shall specify the following information:

1. Information related to the company: legal name, corporate form, registered office and, as the case may be, its unique identification number followed by (i) the mention of the relevant Trade and Companies Register and (ii) the clerk's office where the company or legal entity is incorporated.

2. Information related to the beneficial owner: the name, name used, pseudonym, first names, date and place of birth, citizenship, personal address of the relevant individual(s) and the terms and conditions under which the control is exercised over the legal entity.

The date on which the individual became a beneficial owner must also be provided.

It is unclear what is meant by the "terms and conditions" [modalités] under which the control is exercised". One can hope that the registrars of the local Commercial Tribunal will exercise proper restraint in their requests for information in this regard. Also, one will need to be cautious regarding the description of the "control" over the entity, in order to remain in strict compliance with corporate rules.

Any change making the disclosed information inaccurate or incomplete must be filed within 30 days.

The Disclosure of the Identity of the Beneficial Owners to Third Parties

The Decree provides for a long list of the individuals holding specific offices who are expressly authorized to have access to the information related to the beneficial owner of a legal entity. As a matter of illustration, judges of the ordinary courts (ordre judiciaire), tax services, customs authorities, French regulators such as the Autorité des marchés financiers (stock exchange watchdog), the Autorité de contrôle prudentiel et de résolution (prudential supervision authority) or Tracfin (anti money laundering authority) have access to the Register for the purpose of their mission.

In addition, however, it is possible for any person to be authorized to have access to the information by making a request before the specific judge assigned to the monitoring of the register. The request must be justified but the standard of appreciation of the justification to be provided is unclear.

Also, it must be remembered that the updated version of the EU Directive of May 20, 2015 that the EU Commission is working on provides for a general right of access to the information relating to beneficial owners.

Penalties

The President of the relevant Commercial Tribunal can order any legal entity under the Tribunal's jurisdiction to file information related to the beneficial owner(s). The order can be accompanied by a daily fine (astreinte) payable until fulfillment of the disclosure obligation. A fine of up to €7,500 may also be imposed in case of breach of the new rules as well as a sentence of up to six months in prison.

* * *

As a result of such new rules, agreements such as fiduciary, trust or nominee agreements entered into with respect to shares of non-listed French companies will have to be analyzed in order to identify the beneficial owner of such contractual arrangements. It will be a significant blow to the confidentiality principle usually applicable to such agreements. Companies and legal entities subject to these new disclosure rules should assess their disclosure requirements and contemplate implementing monitoring procedures of their direct and indirect shareholding in order to remain current in their disclosure obligations.

26 June 2017

Solocal Group’s CEO and Chairman ousted by shareholders

The commitment of two modest indivisual shareholders at the beginning of May, Pierre-Henri Leroy, the chairman of Proxinvest,and of his wife, with only 12,000 shares corresponding to € 13,000 euros, was enough to trigger this major change.

This had been precisely the target of the shareholders group gathered by Baudoin de Pimodan (pictured here) in SolocalEnsemble, particularly disappointed with the dilutive restructuring finally proposed by the Management and granted by the directors elected on 19 September. The fear of a ceasing of payments forced by the creditors before the Commercial Court and a total disappearance of the shares in progress on this occasion had made a management tremble that remained until the end clinging to the certainty of having Well acted, supported by scattere often incompetent Directors.

Above all, the disappointing performance of the Group’s operating performance led SolocalEnsemble’s resisting shareholders to the conviction that only a new management would be able to restore the company the bar, and that this reform was to begin with the dismissal of the governance head, Chairman Robert of Metz.

Highly disappointed by the dilutive restructuring proposed by the Management and granted by the Directors elected on 19 September. The fear of a ceasing of payments forced by the creditors before the Commercial Court and a total disappearance of the shares in progress on this occasion had made a management tremble.

These remained until the end clinging to the certainty of having acted properly, supported by scattered often incompetent Directors.

This was all the more necessary as the latter, as Chairman of the Compensation Committee,

had prepared and had adopted a free share plan for the shareholders to be literally a scoundrel,

a plan that deprived shareholders of up to 6% of the capital with only performance condition of maintaining the current share price below the official objective of the restructuring and even though the company shareholders had just saved the group by reinvesting € 400m in equity and agreeing for the benfit of lenders.

In order to save time, Pierre-Henri and Bénédicte Leroy had agreed to assume alonethe burden of presenting three external resolutions:: the dismissal of Chairman Robert de Metz and of A director long associated withe the LBO investors, Cécile Moulard, plus a serious amendment of the so-called performance shares plan.

See over the site of the association SolocalEnsemble the summary made by Baudoin de Pimodan of this memorable AGM.

Admittedly, the demands for dismissal were not adopted, that of Robert de Metz collecting 21.79% of the votes and that of Cécile Moulard with 15.77%, as the first had prior to the meeting announced his withdrawal by September.

The Board had not been well inspired to refuse the share plan revised by Mr. and Mrs. Leroy, who thus obtained only 34.62% as the plan of the company, still too generous for the managers was finally rejected with 66.36% of the votes. As a result of the greed of some employeesthe group will miss the action plan to hire new talents…

It remains for the shareholders of Solocal Group to wait until the new nominating committee chaired by theDirector and Nobel fund representative , Philippe de Verdalle, has finally found, with or without the headhunter Heidrick & Struggles, the indispensable competent exemmplary that this great company so badly needs.

21 May 2017

Say No to CEO’s 59% remuneration increase at VALEO

How should shareholders vote when a company has excellent financial performance, good transparency on executive remuneration but whose total compensation for the Chairman-CEO goes from € 3.3m in 2015 to € 5.3m in 2016, i.e. + 59%?

Simply say NO …

The total compensation of Jacques Aschenbroich, Chairman-CEO of the automotive supplier Valeo, rose 59% to € 5.3 million in 2016, 30% more than the median of the CAC40 index according to Proxinvest.

The automotive sector is now as well known for the optimization of pollution tests as for optimizing the remuneration of its CEOs. Thus, Proxinvest notes that this remuneration is in line with the median of the leaders of the Automotive sector in Europe. It still represents 266 times the French minimum salary and Jacques Aschenbroich thus joins the highly regarded circle of executives whose remuneration exceeds the ceiling of the maximum socially acceptable remuneration of 240 SMIC defined by Proxinvest as of 2005.

While Proxinvest considers that the combination of the functions of Chairman of the Board and Chief Executive Officer is not a desirable governance move, the Board of Directors uses this unfortunate development to justify a 11% increase in base salary. With such monetary incentives to combine CEO and chair positions, there is no need to investigate why France is one of the few countries on the world where there are still combined chairman-CEOs.

The increase in base salary has a direct effect on the annual bonus which is calculated as a percentage of the base salary and capped at 170% fixed, an amount that does not comply with the voting policy of Proxinvest.

Half of the new compensation is composed of performance shares for € 2.7 million.

For this financial year 2016, shareholders have an advisory Say On Pay in resolution 9 in accordance with the AFEP-MEDEF code. For the remuneration to be granted in 2017, shareholders have in France a binding vote in resolution 10 thanks to the Law Sapin 2 but the remuneration policy does not move for 2017. The damage has been done in 2016 and the 2017 total remuneration is likely to remain beyond 5M € according to the new remuneration policy …

Valeo currently has the 34th biggest market capitalization of the CAC40 index, therefore there is no reason to support such an increase in compensation which would rank Mr. Aschenbroich 10th highest remuneration of the index according to Proxinvest last annual survey about CEOs remuneration in France.

We regret a lack of dialogue and prior consultation by the Lead Independent Director, George Pauget, who also chairs the remuneration committee of Valeo. At the time he was CEO of Crédit Agricole, his decision to acquire the Greek bank Emporiki led to a 9 billion € lose for Crédit Agricole’s shareholders. Maybe the €2M remuneration increase looks like peanuts in comparison with Emporiki disaster…

13 May 2017

Ira Millstein tells us the worries of US CEOs under TRUMP and the need for engaged Directors

Ira recognizes that following the financial crisis settlement and the two regulation waves of Sarbanes-Oxley and Dodd-Frank big banks felt reassured and dropped their earlier concern for a better governance. Also the usual heard instrincts partnered with the pressure for compliance to produce fairly boring Boards. Ira insists on the urgent need for corporation to get new highly engaged directors at their Board, knowing their business and willing to know the company in depth, very informed, more open to the rest of the world and to the demands of the general public.

Activist shareholders, says Ira, are also very useful. They are not always right but they should be always listen to.

Ira is sharing with us a serious worry about the impredictible Mr. Trump and the need of the CEOs for serious assistance from their Directors. Ira is calling for a new breed of “activist” directors who partner with management and reject short-term outlooks, plan a future based on growth and innovation, and take responsibility for corporate organization, strategy and efficiency.

5 May 2017

Vivendi shareholders tackle Vincent Bolloré at the AGM

The extraordinary grip over all of his asset by Vincent Bolloré was confirmed during the general meeting of Vivendi on 25 April by the adoption of all the resolutions, notably thanks to the double voting right and following very questionable threats against foreign shareholders made in 2015 by Vivendi…

A magician of language, a no-nonsense industrialist and a great financier, Bolloré never ceased to prove his talent. He might succeed at achieving what Jean-Marie Messier failed to s: the convergence of contents and carriers, the alliance between the creation and the media, and the appearance of a unique French media group facing the greatest Americans. With his disturbing but effective financial opportunism, the problem with Vincent Bolloré is that he does not like to comply with the rules of good governance.

And even his peers, the big French bosses blame him. Created in 2013, under the pressure of the French government, Medef and Afep to extinguish the fire of abusive remuneration new version of the “Code of Government of listed companies”, was written and a High Council of Corporate Governance (HCGE) was created, charged with enforcing the Code and privately admonishing offenders. According to the Les Jours website, which reveived some confidential stories, the HCGE President Denis Ranque alleged that Vivendi had explicitly objected to Vincent Bolloré, chairman of a supervisory Board at Vivendi: ” You are more involved as a real executive officer than as the chairman of the supervisory Board responsible for overseeing but not managing the company and its group. “No one needs to see Bolloré in a general assembly to find out who caries the sheriff’s star, who is the operational boss and who specifically calls the managers of the various subsidiaries to tell publically he beautiful story of Vivendi.

Vivendi’s minority shareholders in fact strongly sanctioned the leader maximo for its multiple directorships at listed companies, while he was demanding to be re-elected for a four-year term at the Supervisory Board: his score was only 82.12% and would have been only 62 to 66% of the AGM votes without the artifice of the double voting right.

More clearly, the Say on Pay vote for of members of the Executive Board subjected to the iron hand of this authoritarian Bolloré paid the price for this poor governance. The remuneration of the Chairman of the Management Board, Arnaud de Puyfontaine (ie € 3.5 million for 2016) was deemed excessive and did not reach 75% of the votes, as those of MM. Hervé Philippe (€ 2.4 million) and Stéphane Roussel (€ 2.7 million). Ironically, to accept the constant involvement in the management by the Chairman of the Supervisory Boardwould appears to be the essential contribution of these the Executive Board members…

Without the double voting rights Vivendi could no longer increase its capital.

Two years ago, the Bolloré group held 10.20% of the share capital of Vivendi, ie 138,976,805 shares.

On the day of the general meeting held on April 25, the Bolloré group held at least 20.65% of the share capital (257,689,013 of the 1,247,888,683 shares ) and, thanks to double voting rights 40, 6% of the 975 610 998 votes of the ordinary general meeting.

Several resolutions were passed with less than 75% of the votes ie less than 731,708,248 votes and would have got 60% of the votes without the Bolloré Group’s 138,976,805 double voting rights. They apparently almost all passed, even without the presumed vote of general support of the 200 727 450 double voting rights of which the 15 million double voting rights of the plan of the employees. Resolution 14 appointing Yannick Bolloré only garnered 697,709,447 votes, or only 71.52% of the vote: even without the support of the total of 200 million voting rights double its score “naked” would finally have largely exceeded 387,441 774 votes needed for the threshold of 50% of the votes cast.

But the extraordinary financial resolution to increase the capital with DPS for € 750 million, Resolution No. 21, adopted at 70.1% (691,382,945 votes) with the support of Proxinvest, would undoubtedly not have passed since it would then not have reached the 516,537,373 shares required to reach the 66.7% threshold without the double voting right.

Although this very ambitious financial resolution did not seem to be a problem, Proxinvest insists that double voting rights remained a very perverse protectionnist provision.

20 April 2017

Accor’s Board unanimously maintains its double voting right: Proxinvest withdraws its support advice on Nicolas Sarkozy as independent director and on Sébastien Bazin as Chairman & CEO of Accor.

Proxinvest regrets this decision affecting the interests of all shareholders.

It led the proxy firm to further encourage support the Yes vote in favour of the shareholders Resolution A at the May 5th. meeting, but also to alter its recommendations on the vote on some Directors elections. Only the respect for the principle of “one share – one vote” could prevent one of the new major shareholders, notably the Chinese competitor Jin Jiang, who is still for the time being denied a seat on the Board, to weight on the group decisions without having to launch a takeover bid. Actually the two other beneficiaries of this double voting right provision will be the Qatari and Saoudi Accor stakeholders…

Proxinvest, until now, had supported the re-election of the Chairman & CEO Sébastien Bazin and of the recently appointed former president of France Nicolas Sarkozy to the Board of Directors. But this breach of a guiding principle for good governance being bad manner to shareholders democracy, Proxinvest advise investors to vigorously react and to oppose the Directors election.

In a message to Sébastien Bazin, the CEO of Proxinvest, Loïc Dessaint, observed that the CEO’s former verbal commitments to good governance are no longer confirmed and that Proxinvest’s voting policy can no longer support his re-election as CEO.

Similarly, the association of Nicolas Sarkozy to this Board decision against the equal treatment of shareholders tilts the Proxinvest advice against the confirmation of the Former head os State election because his qualification as an independent director is now unfounded. Proxinvest had at first welcomed the association of a former President of the French Republic Nicolas Sarkozy with the Board of directors of Accor, a French group with a global reach. But the role of the Director is above all to look after the interests of all shareholders and not to protect any preferred or favored shareholder, be they Chinese , Qatari or Saoudi.

Proxinvest also does not support the Accor Say on Pay consultations on the Managing Directors pay (resolutions 12 and 13): following the 2016 warning vote against Sébastien Bazin’s Pay, the company did not improve its information on the package and the individual achievement rates of the bonus performance criteria are still undisclosed.

As for the new free share plan (or “Co-investment plan”) proposed by the company, an innovative formula subject to a very ambitious course of growth, Proxinvest régrted that such generous plan be implemented in addition to the existing bonus shares allocations offering 5% ofthe company to the management after three years only. If this plan had been put in place as an alternative to the current allowances, it would have better justified the allocation of potentially very high benefits to the parties concerned at shareholder’s expense (resolutions 14, 15 and 26).

Proxinvest believes that CEO pay ratio disclosure aims to help investors better gauge the reasonableness of CEO pay. Therefore Proxinvest decided to join an investor group with $3Trln in assets to urge SEC not to delay CEO pay ratio disclosure.

“The SEC’s pay ratio disclosure rule is thoughtful, balanced, and carefully crafted to provide companies considerable flexibility and makes accommodations to them in complying with the rule, while giving shareholders valuable new information” the groups wrote in the letter.

The new Shareholder Right Directive,voted by the European parliament this month, will oblige companies listed in the European Union to disclose in their remuneration report “the annual change of remuneration, of the performance of the company, and of average remuneration on a full-time equivalent basis of employees of the company other than directors over at least the five most recent financial years, presented together in a manner which permits comparison“. This EU new disclosure is close to the current UK practice.

As clearly explained by the UK Executive Remuneration Working Group established by the UK Investment Association, “There is growing public disapproval of the absolute levels of remuneration paid to business leaders, as well as growing divergence between remuneration paid to those business leaders and remuneration paid to other employees in the company. The issue of quantum is often the underlying issue behind shareholder and public disapproval of executive remuneration. […] The internal reference point should preferably be the ratio between the remuneration of the CEO and median employee pay, which should then be publically disclosed. Boards must take account of CEO pay relative to market levels, but they must also make sure that their decisions are not dictated by benchmarking alone, as this has significantly contributed to the “remuneration creep”.”

UK, Europe and the US have to move together to restore shareholder, employee and public trust in reasonable executive remuneration practices.

14 February 2017

Oh SNAP! This time you get no voting power!

SNAP Inc., owner of the budding social media platform snapchat, has announced plans to go public capturing the imagination of investors following a year of abysmal technology IPOs in 2016.

With plans to raise an estimated $3 billion from its IPO, market observers estimate that the Company will fetch a valuation of $20 to $25 billion, a healthy premium to its most recent valuation of $18 billion as a private company. According to Dealogic, 26 technology IPOs in 2016 raised $4.3 billion from US exchanges.

Echoing the IPO behaviour of other technology firms, SNAP founders Even Spiegel, 26, and Bobby Murphy, 28, plan to implement a multiple class structure. But unlike their tech peers, they plan to issue shares to the public with zero voting rights, which is considered extreme even by technology industry standards. Google founders Sergey Brin and Larry Page gave themselves disproportionate voting power back during their 2004 IPO allowing them to control almost 60% of voting rights. Mark Zuckerberg of Facebook followed suit in 2012 only to strip investors of their voting rights last year in order to maintain 60% of voting rights while donating substantially all of his shares to his foundation.

Voting power

SNAP has created a three-tiered share structure.

The company boasts just over 512 million Class A shares, which carry zero voting rights. The founders each hold 21.8% of these shares. Early investors Benchmark Capital Partners and Lightspeed Venture Partners hold 12.7% and 8.3% of these shares respectively with SNAP board member and Benchmark general partner Mitchell Lasky holding a further 12.7%.

Class B shares carry 1 vote per share and are primarily owned by the aforementioned venture capital funds: Benchmark (22.8%), Lightspeed (15%), and Lasky (22.8%). Atop the share hierarchy are Class C shares which are equally owned by Spiegel and Murphy and each boast 10 votes per share effectively giving the young founders 88.6% of voting rights.

Post-IPO, each Class B share transferred will automatically convert to a Class A shares save for a few exceptions. Additionally, Class C shares will convert to Class B shares upon transfer save for a few exceptions, which include the transfer of shares between the founders themselves. Both Class B and Class C shares convert to Class A and Class B shares, respectively upon the death of the holder. Moreover, should one of the founder’s holding of Class C shares fall below 30% of his holding at the time of the IPO or a specific number of shares to be later determined, said shares would automatically convert to Class B shares. And when there are no Class C shares left, outstanding Class B shares will convert to Class A shares, all of which would gain voting power to the tune of 1 vote per share.

Source: S-1 SEC filing

A cursory review of the holdings would reveal that the SNAP founders each enjoy a control premium of almost 2.29 times. In our previous reporting, we defined control premium as voting power as multiple of actual economic interest. A control premium in excess of 1 violates the “one-share/one-vote” principle and enables a concentrated group of shareholders to control the firm.

In a report co-authored by IRRC and ISS, researchers found that controlled firms with single class structures outperformed their counterparts with multiple class structures in the S&P 1500 Composite Index over a 3-year, 5-year, and 10-year performance period ending in August 2012. However, multiple class structures did outperform over a 1-year period. In analysing SEC disclosures between 1990 and 1998, Chad Zutter of the University of Pittsburgh found a substantial discount applied to the initial valuation of dual class structures. He interpreted it as the market’s perception of “a relationship between the extreme entrenchment of dual-class management and firm performance” and concluded that the market tends to overprice said structures around the time of the IPO only to correct as time passes. These findings seem to broadly confirm the conclusions derived from the IRRC/ISS report.

Interestingly, other researchers have adopted a more nuanced view. Thomas Chemmanur and Yawen Jiao’s IPO model revealed that dual class IPOs are more likely to outperform their single class peers when “the reputation of the incumbent is high and the firm is operating in an industry where the difference in intrinsic values between the projects with high and low near term uncertainty is large”. Whether Spiegel and Murphy the true visionaries they are trumpeted up to be is yet to be determined, but the technology sector does offer its fair share of uncertainty and astronomical valuations.

Disenfranchisement did not seem to deter investors in the technology sector in the past, but have the SNAP founders gone too far? In a recent letter to Spiegel, Murphy, and chairman-designate Michael Lynton, the 18 members of the Council of Institutional Investors (CII), which include the California Public Employees Retirement System (CalPERS) and Aberdeen Asset Management, urged SNAP to adopt a single class share structure citing the findings in the IRRC study.

The Corporate Governance Principles for US Listed Companies championed by the Investor Stewardship Group (ISG), a grouping of 16 US and international institutional investors which include Blackrock and Vanguard, has also publicly rebuked dual class structures. The second concisely echoes this sentiment: “Shareholders should be entitled to voting rights in proportion to their economic interest”. It further calls for boards that currently employ dual class structures to regularly review the benefits of such a practice and to “establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders”. Although the ISG does not plan to uphold these principles until January 1, 2018, their message is loud and clear.

Expensive valuation

Talk of SNAP’s valuation has gripped markets. Although an IPO price has yet to be disclosed, analysts are estimating a valuation of $20-$25 billion, a multiple of 62 times FY 2016 sales or 25 times FY 2017 projected revenues. A very expensive proposition compared to the valuations used for some of its peers such as Facebook and Twitter.

Making this generous valuation even more worrisome is the fact that SNAP reported a gross margin of almost -12% for FY 2016 (although margins turned to a positive 7% in Q4 2016). These abysmal margins are due to the fact that, unlike Facebook and Twitter, SNAP outsources its data services to the Google Cloud. Earlier in the year, SNAP signed a 5-year deal with the Google Cloud Platform that requires a minimum payment of $400 million/year to provide the infrastructure vital to keep its Snapchat application running. Twitter, at a similar revenue base, boasted gross margins of 63%.

Other profitability measures do not paint a prettier picture. Adjusted EBITDA worsened by 57% to reach -$459 million in FY 2016 and the Company continues to haemorrhage cash flow, reporting Free Cash Flow of -$678 million, almost double its cash loss in the prior year period. It is no surprise then that SNAP’s valuation is predicated on the anticipation of stellar revenue growth going forward, with estimates that they would reach $1 billion in FY 2017 vs. $405 million last year. Nevertheless, growth in Daily Active Users (DAU) appears to be losing steam, reporting year-on-year growth of 40% in Q4 2016, down from a peak of 65% growth in Q2 2016. Even quarterly DAU growth has fallen to the single digits in the last two quarters of FY 2016. Analysts have not overlooked the potential for Facebook’s “Instagram Stories” to accelerate this trend.

Shareholders should also note that Twitter, trading currently at $18-$19/share, is still almost 50% below its IPO valuation and market observers are sceptical as to whether it can generate the growth necessary to justify a higher valuation. Facebook, after debuting in a disastrous IPO which shed over 50% of its value, has come roaring back, currently trading at 350% of its IPO price, after it definitively proved its staying power.

The stakes are evidently high, and given the extremely volatile nature of young technology companies, it is incumbent upon boards to at the very least give shareholders a say in how their companies are run.

Executive Compensation

Our discussion then turns to executive compensation, where it appears that SNAP executives are being generously compensated for their potential to generate future growth as opposed to actual performance.

Evan Spiegel, who currently serves as CEO collected $2.4 million in compensation in FY 2016 and received no shares as compensation. However, shareholders should note that the Class A shares he received as a dividend for his holdings are excluded from these figures.

The Company has stated that post-IPO, Spiegel will receive a symbolic salary of $1, mirroring that of Mark Zuckerberg and the Google founders. Nevertheless, he is slated to receive an award of 3% of all outstanding shares on the closing of the IPO, or should the valuations being floated be realized, a handsome $600 to $750 million windfall. The award will be paid in the form of Class C shares, making Spiegel the largest controlling shareholder, pushing him well ahead of Murphy in the pecking order.

Last year SNAP made headlines when it poached Imran Khan from Credit Suisse to be its chief strategist, rewarding him with 7 million restricted share units (RSUs) worth an astounding $146 million. Almost all share awards (RSUs and stock options) have a service condition (time spent at the company) and a performance condition. According to the S1 filing, the performance condition is ‘satisfied on the occurrence of a qualifying event, which includes a change in control or the effective date of an initial public offering’.

As of December 31, 2016, SNAP had almost $1.5 billion in employee RSUs that have not yet satisfied the service condition. More troublingly, had the IPO occurred on December 31, 2016, SNAP would have recognized a colossal $1.1 billion in compensation for RSUs that have already satisfied the service condition. The most recent RSUs granted in November-December 2016 boasted a weighted average fair value of $16.33/share. As for stock options granted during the year, the weighted average fair value was $30.19/share, with a strike price of $1/shares. In July 2016, 1,253,028 stock options were granted with an underlying common stock fair value of $31.08/share.

A successful IPO will prove to be an enormous payday for SNAP executives, and given the lack of genuine performance conditions, they may not bear the consequences should a massive correction in the share price take hold à la Twitter.

Much ado about nothing?

If SNAP were to become the next Facebook, dissenting voices will surely be silenced as institutional investors reap the benefits of a higher share price. On the flipside, investors stand to lose quite a bit and will not have the power to change how the Company is being run.

Proxinvest is seriously concerned by the unabashed subversion of shareholder rights at the expense of power-hoarding visionaries, the venture capitalists who enable them, and the opportunistic bankers who hype them. No promise of potential short-term profits should replace shareholder democracy and reasonable valuations.

The question investors have to therefore contemplate is whether accepting excessive non-performance based remuneration and a dual class structure that marginalizes them, is truly worth the risk of investing in SNAP? Time alone will tell.

Imad Barake

12 February 2017

Proxy Season 2017 in France: More responsibility for shareholders in taming executive pay

The roundtable brings together representatives of leading proxy advisors to voice their concerns and expectations in front of an audience that includes representatives of several corporations that they would be covering during the season. More importantly, it gave Proxinvest the pulpit to set the bar high on corporate governance and hopefully entice companies to adjust their policies accordingly.

Executive compensation, as indicated by financial journal AGEFI, will remain at the heart of the 2017 proxy season when France will become the latest test ground for compensation legislation. Recall that CEO compensation made headlines in France and around the world following the first rejection of a Say-on-Pay resolution since the advisory vote on remuneration was introduced in 2013. The historic vote fell on deaf ears and a defiant Renault upheld the compensation of its controversial chief, Carlos Ghosn.

The ensuing shareholder revolt compelled France’s opportunistic politicians to act prior to a crucial election year. Named after Economy Minister Michel Sapin, the “Loi Sapin 2” was born at the end of 2016 and stipulated a binding ex-ante vote on compensation for companies listed on regulated markets, starting from proxy season 2017. The objective of the law is for shareholders to give their explicit approval of fixed, variable and exceptional sums that may be granted to corporate officers going forward.

Case in point is how one in two CEOs earn less than €2.6 million per year, including shares and options. While this figure is considered excessive in France and capped off three decades of steady increases, it is by and large dwarfed by compensation in the US and UK. The huge pay disparity between French executives and their Anglo-American peers demonstrates the very different standards that French society and shareholders hold their top executives to. Non-French investors collectively hold 60% of the biggest listed French companies, giving them considerable power at general meetings and large responsibilities and duties.

Naturally, what startles French society does not bat the eyelashes of these overseas investors and their proxy firms alike.Paradoxically, inrecommending shareholder approval of remuneration policies exceeding largely the local practice (generally speaking compensation packages awarding between €5 million and €15 million are generally considered excessive in France), US proxy advisors have contributed to support and legitimize outsize compensation that took French society, politicians, and even some CEOs by storm. The legislation that heralded the Say-on-Pay vote in 2013 as a means to empower shareholders and curtail excessive pay inadvertently became an instrument to the contrary (+20% in CEO’s total pay in 2015 according to Proxinvest annual study on french CEOs pay).

The considerable weight of foreign investors in France’s capital markets can be viewed as a testament to the country’s lack of local sources of fresh capital. In a cruel twist, France’s dearth of funded schemes as a modus operandi for its retirement plans renders it dependent on these very same foreign pension funds that champion such schemes. Faced with such a daunting challenge, it is incumbent upon France to consider the benefits of adopting funded schemes as such structures have a history of investing locally and adopting long-term investment objectives. Not only would such a solution stem the dependence on foreign capital, it would greatly contribute to aligning corporate governance policies with the spirit and letter of the laws intended to promote them in the first place. Indeed, the few French pension funds (ERAFP, Ircantec) seem to be ready to tacle executive compensation issues (83% of votes against at French general meetings by ERAFP, a 100% SRI pension fund with €26bn in assets and 4.5m beneficiaries).

True to form, Proxinvest will be closely monitoring the evolution of the new binding vote on remuneration throughout the upcoming season, with an eye to to extolling the virtues of moderate pay, transparency and alignment with performance. With the new Sapin 2 Law, France is becoming a laboratory of new shareholder rights to curb excessive executive pay. Time will tell whether global investors be ready to use efficiently those new shareholder rights and to finally stop any support to executive pay inflation.

4 January 2017

Monte dei Paschi di Siena: from helping the poor to emptying state coffers

More than seven years after the Great Recession, the bailout saga continues. The failure of the Italian referendum on December 4, 2016 and the subsequent resignation of Prime Minister Matteo Renzi’s government sent markets into a tailspin and stopped Banca Monte dei Paschi di Siena’s (BMPS) restructuring plan in its tracks as understandably jittery investors refused to commit capital. With almost €47 billion in gross non-performing loans (NPLs), the beleaguered bank turned to Rome for a third potMonte dei Paschi di Sienaential bailout since the financial crisis.

On December 7, 2016, the Italian government announced its intention to purchase €2.2 billion in subordinated BMPS bonds currently held by retail investors. As of the morning of December 12, 2016, it was confirmed that the government decree to affect said transaction has been prepared but it has yet to be approved since a new government would have to be formed first. After a weekend of haggling, President Sergio Matteralla asked current Foreign Minister Paolo Gentiloni to form a caretaker government until elections are held. The new prime minister comfortably clinched a vote of confidence in the Chamber of Deputies on December 13 and is set to scrape through in the Senate vote expected to take place in the coming days. On the same day, the new leader unequivocally stressed that the government would be ready to intervene to guarantee the stability of the financial system. Should a decree be approved in the near to medium term and the blessing of the EU be secured, the subordinated bonds will be purchased and would then promptly be exchanged for shares giving the Italian state a 40% stake in the bank.

While acknowledging that the political process for a bailout may well turn into a protracted fight, and especially after the European Central Bank (ECB) refused their request for an extension to raise the necessary capital, the bank’s top brass decided to double down on their original restructuring plan. Current CEO Marco Morelli hopes to highlight to retail investors that the voluntary conversion of their subordinated bonds would fetch a much higher premium than a forced conversion that would likely take place in a bankruptcy. Moreover renewed efforts will be exercised to persuade institutional investors to return to negotiating table.

BMPS shares rallied 11% last week after the announcement that a bailout may be in the works only to lose all those gains going into the weekend. The appointment of a new prime minister pushed shares up by almost 8% in the early hours of trading on December 12, 2016.

The road from “piety” to Santorini and Alexandria

In the late Middle Ages, Franciscan Monks under the auspices of the Catholic Church founded and began operating a series of institutional pawnbrokers. These “Mounts of Piety” provided collateralized loans at affordable interest rates to the poor and more importantly countered the exorbitant rates charged by moneylenders of the day. In 1472, one of these institutions was founded in Siena. This institution continued to evolve over the years becoming one of Italy’s largest retail banks and a symbol of pride for its native Siena. The bank’s then largest shareholder, the Monte dei Paschi di Siena Foundation, which was spun out of the bank in 1995 following its public listing, prided itself on a reputation as “the ATM”, a title it earned thanks to the roughly €220 million it used to donate annually to its city almost a decade ago (the foundation’s stake in the bank has since been wiped out entering 2016 at a meagre 1.6% of capital)[i].

The storied bank’s current malaise traces its roots back to November 2007, when it made the ill-fated decision to acquire Banca Antoveneta. Under the leadership of then CEO Antonio Vigni, BMPS purchased Antoveneta from Spain’s Banco Santander for an eyebrow-raising €9 billion, or €9 million per branch. In hindsight, the transaction proved to be a textbook definition of empire-building as Mr. Vigni aspired to avoid being relegated to a regional player in a largely consolidating banking industry.

Antovenata itself was carved out of the carcass of ABN AMRO after it was jointly acquired in October 2007 by Banco Santander, the Royal Bank of Scotland, and Fortis following an epic takeover battle with Barclays. Alarmingly, the Spanish bank booked an instant 60%, or €3.4 billion, capital gain on the transaction. BMPS partly financed the deal with a €5 billion capital increase and market observers at the time fretted about its “overstretched” balance sheet. Merrill Lynch advised Banco Stander on the original purchase of Antoneveta and then advised BMPS itself on its own subsequent purchase of the asset raising conflict of interest concerns. All told, court documents show that investment banks generated an astounding €200 million in fees advising BMPS on acquisitions and derivatives deals between 2008 and 2011.[ii]

The financial crisis took its toll on the Sienese bank as it reported an astounding €14.7 billion in cumulative net losses between 2011 and 2014. In October 2012, shareholders approved a capital increase of €1 billion to help bolster the bank’s capital position to no avail: in January 2013, the bank received €3.9 billion in emergency loans from the Italian government and shareholders approved capital authorisations of up to €6.5 billion to help BMPS repay its benefactor should it be unable to do so organically. To make matters worse, around the same time the bank was rocked by revelations that it may have misled investors through several controversial derivative transactions that helped it conceal losses.

In what became known as “Project Santorini”, BMPS made a €1.5 billion bet in December 2008 on the value of Italian government bonds it had previously posted as collateral with Deutsche Bank. Essentially, BMPS took a long position in credit default swaps on Italian government bonds, which backfired as Italian 10-year yields went from 148 basis points in November 2008 to almost 570 basis points in November 2011. Ironically, this deal was originally designed to conceal €367 million in losses from an earlier equity swap deal also with Deutsche Bank[iii]. Shortly afterwards, it was revealed that the bank had to book further losses on yet another derivative transaction, dubbed “Alexandria”, this time with Japan’s Nomura. Both deals were allegedly approved by the Bank of Italy, which was headed by none other than current ECB president Mario Draghi up until late 2011. Nomura finally agreed to settle the Alexandria transaction out of court without admitting any wrongdoing. In the aftermath, BMPS was forced to restate its 2012 financial statements to reflect €730 million in losses from its derivative transactions but was able to report a profit in 2015 thanks largely to the €608 million settlement it received from Nomura.

In October 2014, an Italian court sentenced Mr. Vigni, former chairman Guissepe Mussari (who later went on to head the Associazione Bancaria Italiana, an Italian bank lobby) and former CFO Gianluca Baldassarri to a three year and a half jail sentence for misleading regulators regarding the Alexandria transaction[iv]. Prosecutors successfully argued that the trio hid a document describing how the derivative was linked to the purchase of €3 billion worth of Italian government bonds and hence required a different accounting treatment. The document was found by the bank’s new management hidden in a safe in Mr. Vigni’s former office. The trio appealed and they will stand trial on December 15 along with eleven others from BMPS, Deutsche Bank, and Nomura[v].

Adding further mystery and intrigue to this saga was the fact that David Rossi, former director of communications at BMPS had allegedly committed suicide on March 6, 2013 after jumping from a window on the third floor of the bank’s headquarters. Mr. Rossi’s wife claimed that he had informed his boss, former CEO Fabrizio Viola, two days prior to his death that he did not want to be ‘overwhelmed by this’ and wanted ‘assurances’. In a final twist, Mr. Viola stepped down as CEO on September 8, 2016, a mere week after prosecutors decided to drop charges of market manipulation against him. Another man who may have had intimate knowledge of the derivative transactions with BMPS was former Deutsche Bank chief risk officer William S. Broeksmit, who also allegedly committed suicide by hanging himself in his London apartment in October 2014[vi].

Capital, Capital, Capital!

According the bank’s financial statements, it paid almost €735 million in dividends between 2009 and 2012, right before it suspended its dividend payment. It is disgraceful that one of Europe’s least capitalized banks was allowed by regulators to pay a dividend in the first place.

This trend is unfortunately not unique to BMPS or Italy, for that matter. At a panel discussion in February 2016, Hyun Song Shin, economic advisor and head of research at the Bank of International Settlements (BIS) noted that accumulated dividends for a sample of 90 EU banks between 2007 and 2014 amounted to €196 billion vs. cumulative retained earnings of €310 billion. This implied that capital levels would have been at least 63% higher at the end of 2014 had banks not paid dividends. Italian banks actually paid more in dividends than the cumulative retained earnings they generated during this time frame (€28 billion vs. €25 billion in retained earnings)[vii].

Time and again the BIS has extolled the virtues of higher capital levels. In a working paper in April 2016 it noted that a 1% increase in equity-to-total assets was associated with a 4% decrease in the overall cost of deposit and debt funding which in turn would spur faster credit growth. This funding debunks the conventional mantra regarding the potential monetary policy trade-off between increasing bank lending to spur growth on one hand and ensuring the financial viability of individual banks on the other. The BIS explicitly stressed that “both the macro objective of unlocking bank lending and the supervisory objective of sound banks are better served when bank equity is high”[viii].

Central banks have only their misguided policies to blame for the clear breakdown of the transmission mechanism between loose monetary policy and bank lending.

The 2016-2019 Business Plan: Panglossian goals

BMPS’ current business plan calls for a massive recapitalisation of its balance sheet and the securitisation of the bulk of its non-performing loan book. The recapitalisation plan targeted a capital injection of €5 billion which the bank intended to largely raise through the swapping of existing subordinated notes for new equity. In this respect, the bank was able to secure roughly €1 billion from institutional investors. However, the likelihood of convincing the retail investors, holding roughly €2.2 billion in subordinated debt proved impossible.

Other fund raising avenues were to come from a private placement and as a last resort from a public offer. Conversations between management and several investors revealed that much of the success of this plan hinged on the adoption of the December 4 referendum. Given its failure, it comes as no surprise that the Italian government decided to fill the hole. According to media sources, the bank was in talks with the Qatari Investment Authority for a €1.4 billion investment. The wealth fund has since backed down as it opted to wait for the formation of a new government.

The securitisation plan entails the sale of roughly €28 billion in gross non-performing loans to a series of securitisation vehicles for €9 billion, a steep discount to gross exposures. One of the securitisation vehicles is guaranteed by the Italian government through its Guarantee on Securitization of Bank Non-Performing Loans (GACS) program and is slated to repurchase up to €5 billion through the sale of senior tranches on the underlying loan pool. The Atlante Fund, a private vehicle sponsored by a hodgepodge of 67 investors with the goal of ‘rescuing’ the Italian banking system, will repurchase a further €1.6 billion through the sale of junior mezzanine notes. Interestingly, Quaestio Capital Management, the fund’s manager released a statement on October 6, 2016 stating that it is not ‘assessing a possible investment in the bank’s [BMPS] capital’. A large state-sponsored securitization program sounds eerily familiar. Fannie and Freddie anyone?

Many other objectives of the Business Plan would leave even the most optimistic investors sceptical. Net income is targeted to exceed €1.1 billion in 2019 and Return on Tangible Equity (ROTE) is expected to surpass 11%, from its current level of 6.2%. Such a lofty goal in the post-Lehman era is wishful thinking. It is based on the assumption that mortgages will increase by 2.5 times over the next three years and that loan loss provisions will be drastically reduced. A post-restructuring NPL coverage ratio of 40% is still abysmal.

Investors should also brace themselves for the potential for contagion in the Italian banking industry. The failure of BMPS’ recapitalisation plan to gain traction post-referendum does not bode well for its much larger rival UniCredit. Italy’s only “systematically important financial institution” plans to raise €13 billion in capital to shore up its ailing balance sheet: €10 billion is slated to come from new capital and about €2.4 billion will come from the sale of a 32.8% stake in Poland’s Bank Pekao. The fact that it holds an estimated €80 billion in gross NPLs (22% of the entire Italian banking system NPL total) makes the task even more daunting.

Faced with all these challenges, extreme volatility, uncertainty, and even more bailouts may be in store for Europe’s zombie banks. With low to zero growth, stretched fiscal budgets, and a frightening wave of nationalism threatening to rip the continent apart, time is running out for policymakers in Brussels and Frankfurt to find solutions.

Lessons for shareholders

While the onus is on the authorities, and notably the ECB, to ensure that European banks remain adequately capitalised, shareholders have an important role to play as well.

Profits retained by banks help solidify their capital base. It thus follows that any profits that banks do not spend on dividends will add to capital. Unfortunately, we have seen European banks being allowed to pay billions of euros in dividends following the financial crisis when many of them ultimately proved or are proving to be undercapitalised. Relying squarely on the Common Equity Tier 1(CET 1) ratios as a measure of the soundness of a bank is not sufficient. Studies have shown that, after controlling for accounting differences (IFRS vs. US GAAP), risk weights (applied to bank assets) used to calculate risk weighted assets (the denominator for the CET 1 ratio) at European banks are significantly below their American peers largely due to different supervisory approaches (Basel I vs. Basel II measurement tools), regulatory policy decisions, and modelling decisions by the banks themselves. This could very well result in a US bank and its relatively less healthy European counterpart reporting similar CET 1 ratios.

Moreover, investors should also pay close attention to the portfolio of NPLs banks report. Typically, banks ‘set aside’ provisions to cover losses they estimate from their loan portfolio. These provisions are then compared to NPLs in order to determine coverage ratios. Coverage ratios of 100% are not entirely feasible since banks will recover a portion of their NPLs over time, but should nevertheless be sufficient to cover the risk inherent in the loan portfolio. Case in point, coverage ratios at BMPS were 61% in the €28 billion loan portfolio it intends to offload in its restructuring plan, meaning that the bank expected to recover at least 39% or €11 billion of that portfolio. However, these NPLs will be sold for merely €9 billion to securitization vehicles (i.e. implying a lower recovery rate of approximately 33%) which is a testament to how woefully insufficient its loan loss provisions were.

Taking these factors into consideration along with conventional governance issues such as board independence will help investors make more informed decisions at general meetings, particularly when it comes to approving a bank dividend. Shareholders should strive to vote against dividends at banks that are undercapitalized and should pay particular attention to any bank attempting to reinstate a dividend in the post-Lehman era.

As tempting as dividends seem being an integral part of a potent shareholder value maximization philosophy, banks should never be allowed to pay a dividend if it eventually leads to bailouts and several rounds of dilutive capital issuances. They should rather focus on what they were created to do in the first place: lend responsibly; and shareholders should hold them to account.

[iv] Planigiani, Gaia, and Jack Ewing. “Monte Dei Paschi Di Siena’s Former Executives Sentenced to 3.5 Years in Prison.” The New York Times (2014): n. pag. Web. <https://www.nytimes.com/2014/11/01/business/international/monte-dei-paschi-di-siena-sentencing.html?_r=0>

On November 8, 2016, the French Parliament adopted a new major statute on transparency, the fight against corruption and the modernization of the economy, better known as the "Sapin 2 Law", by reference to the first Sapin Law of 1993 which improved transparency in politics and public procurements.

With this new statute, broadly inspired by the US and UK regimes, France intends to comply with the highest international standards in the areas of transparency and anti-corruption. The new statute also has an important extraterritorial reach as it provides French criminal courts with the ability to prosecute acts of corruption committed outside of France.

1. Creation of the French Anti-Corruption Agency. The French Anti-Corruption Agency will replace the current Central Service for the prevention of corruption. It will have extended powers to control application of the new rules and enforce them. The Agency will include an Enforcement Commission ("commission des sanctions") vested with disciplinary powers and the ability to fine non-compliances (which are in addition to the existing criminal sanctions). The Agency will also assist French corporations in implementing the new arsenal by releasing recommendations.

2. Corporations must implement adequate procedures to prevent and detect corruption and trafficking in influence. Corporations (including their subsidiaries), with at least 500 employees and an annual turnover exceeding €100 million, will be required to implement a corruption prevention plan. It will include an internal reporting system, a risk mapping of external solicitations for corruption purposes to which the corporation may be exposed, a code of conduct and training programs for employees most exposed to corruption risks. This risk mapping will be key. It will need to be adapted to the industries and countries in which the corporation operates as well as to its clients, suppliers and intermediaries. It will need to be regularly monitored to take into account changes in business and risks. In addition, appropriate internal control procedures will need to be applied. These will likely require implementation of three types of processes (i) controlling operations, (ii) risks monitoring and managing and (iii) documenting internal controls to ensure compliance traceability.

3. Reinforcement of whistleblowers' protection. The new statute strengthen the protection offered to whistleblowers. It requires the implementation of reporting procedures maintaining the strict confidentiality of the whistleblower. It offers an increased protection against retaliation. It provides, under certain conditions, whistleblowers with financial assistance. It extends whistleblowing protection to situations where the whistleblower has reported "a serious threat or damage to the public interest" and not only a violation of applicable laws.

4. New extraterritorial reach of French anticorruption laws. The Sapin 2 Law considerably extends the jurisdiction of French criminal courts. It enables them to prosecute acts of corruption committed abroad by anyone who "carries on its business or a part of its business in France". This will need to be taken into account by foreign companies who conduct even part only of their business in France.

This new regime should definitively contribute in further fighting the criminal risk of corruption within French corporations but also foreign corporations conducting part of their business in France.

28 October 2016

Questions about change of control provisions in loan contracts, a poison-pill

The historic general meeting of shareholders at Solocal Group on October 19, 2016 ended in a bizarre waiver of the dismissals requested and of the new Directors nominations presented by the association of individual shareholders RegroupementPPlocal. The threatened company chairman Robert Metz had actually indicated that “a change in the majority of the Board would trigger an immediate compulsory bonds redemption by the company. ” a statement that froze many sharehodlers willing to operate a serous change at the Board.

The shareholders ultimately limited their support for some external resolutions of RegroupementPPLocal association and “only” dismissed the auditors (Ernst & Young and Deloitte, a premiere! ) , it also rejected the Say and pay resolutions, the restructuring plan and elected three external candidates to the Board…

Actually the Chairman saved his seat thanks to an unexpected argument : the threat of a call on a 350 M€ 2011 outtstanding bond .

“The syndicated loan agreement the Company further includes mandatory prepayment provisions including:

- Mandatory prepayment clause applicable in case of change of control of the Company resulting from the acquisition of shares of the Company “

Reads this clause here does not apply to Solocal Group, as the company has no controlling shareholder, but likely another provision involving the majority change at the Board…Actually an early redemption option existed in the outstanding 350 M€ 2011 bond managed then by Goldman Sachs, This one does protect the borrowers against a case of change at the Board, the company must offer to repurchase the bons a 101%…

1.“during any period of two consecutive years, individuals who at the beginning of such period constituted the majority of the shareholder representatives on the Board of Directors of the Company (together with any new directors whose election by the majority of the shareholder representatives on such Board of Directors of the Company as applicable, or whose nomination for election by shareholders of the Company, as applicable, was approved by a vote of the majority of the shareholder representatives on the Board of Directors of the Company, as applicable, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) ceased for any reason to constitute the majority of the shareholder representatives on the Board of Directors of the Company, as applicable, then in office.” But is this real therat here ?

Such protectionist complex provisions in loan contracts agreements or bond issues, are apparently frequent and they are always signed without any approval of shareholders (except in Belgium), and this raises three questions:

– These are obviously a denial of sovereignty of the general meeting of shareholders for the appointment of Directors, a principle which seems to be part of public order in France , “d’ordre public”. If this is the case all such provisions would be ineffective, and it would be good for all investors, lenders or shareholders, and managers to be aware of it.

– It is also a protection that benefits or concerns at least to the board members that are obviously “interested” or “beneficiaries” in the meaning of the control of related party transactions ; yet these clauses are evidently never submitted to the general meeting of shareholders. This is obviously a serious breach of the related party regulation and constitutes, for us, a cause of nullity at Solocal Group.

– Finally, it is, to say the least, a major element of the governance of a company which should therefore be systematically disclosed in detail in reference document which was not the case at Solocal Group. This market information issue is important and should be requested by the AMF and other regulators of financial markets : can such contractual poison pill not clearly disclosed in their governance review remain valid for lenders or directors? Actually, in this case the company appears to have willingly mis-led the investors and the lenders by claiming in the chapter XIII of its Governance Review on Items having possibly an incidence on tender offerfor the company shares a strong NO. A question mark for the dismissed auditors as well…

At Proxinvest do not think that such undisclosed key protective provision can be applicable.

As part of its monitoring service for investors to help them in the compulsory notification of ownership to the French Financial Authority and to the companies, Proxinvest noted various breaches from French issuers, notably with respect to the key information about the total number of outstanding shares and voting rights. The French Financial Authority, AMF, which is responsible for checking the compliance of the issuers, has been alerted.

Proxinvest noted breaches in the respect of the articles 221-1, 221-3, 223-16 of the AMF General Regulations and of articles L233-8-II and R225-73-1 of the French Commercial Code.

Without timely and reliable information about the total number of shares and voting rights, investors cannot fulfill their duties to notify their ownership. This is particularly worrying since there is a risk of financial penalty on officers of the investor as well as a risk of deprivation of voting rights. It may become very challenging to comply with this obligation due to the short notice for the notification (4 days), a large number of low statutory thresholds in the by-laws (down to 0.50% of the shares or voting rights) and finally due to the high number of companies with double voting rights for registered shareholders.

Proxinvest conducted a limited audit of the French market and identified 22 issuers which do not respect their obligations in terms of release of regulated information. Some French companies are not even aware that a double voting right is now in place in their company following the Florange Act! Another company was obliged to recalculate the voting results after Proxinvest warning.

Financial market can only work properly if everyone respects the rules … It is surely not acceptable to have ownership disclosure duties for investors without providing them with proper information to carry out this duty!

28 June 2016

LSE-Deutsche Börse: Winter is here!

Will the deal survive post-Brexit?

We have all heard executives at both companies tout the benefits of this marriage: creating a global derivatives powerhouse to rival the Intercontinental Exchange (ICE) and CME Group; becoming a leader in post-trade services, and of course a pioneer in market data as the combined entity would own the FTSE Russel, STOXX, and DAX indices.

However, the question on everybody’s mind remains: how will the UK’s historic vote to leave the EU weigh in on the deal? The risks are nothing short of real as executives reiterated ad nauseam in the days following the referendum that the deal will continue as planned. We are not so sure.

In our report published last week, we urged the shareholders of the London Stock Exchange to vote against the merger at the meeting which will be held on the 4th of July. Chief among our concerns was the fact that the deal did not value the LSE at a premium. Case in point is the proposed price of 2,554p/share which was actually at a discount to the unaffected share price on March 15, 2016. In an industry with historic takeover premiums to the tune of 30 to 40%, this ostensible ‘merger of equals’ belies the fact that Deutsche Börse (DB) may lack the financial resources to pay such a premium as noted by market analysts.

Interestingly, for an asset that has been the target of several takeover attempts over the last decade, the Board’s approval of a merger without a premium comes as a surprise and calls into question whether proper due diligence was performed. Providing fodder for our concerns is the fact this is the third attempt at a merger between LSE and DB. Their first dalliance back in 2000 ended when OM Gruppen (operator of the Swedish stock exchange) made a £808 million bid for LSE which was rejected by the company in August of that year. The Germans renewed their efforts in January 2005 by making another cash offer for LSE, this time valued at £1,300 million. Again, the Board rejected this offer claiming that it did not reflect the inherent value in their business. Over the years, DB was not the only interested suitor: LSE has also rejected bids from Australia’s Macquarie Bank (£1,600 million in December 2005) and NASDAQ (£2,700 million in November 2006). The current merger proposal values LSE at £8,913 million.

We note that ICE considered making a counterbid for LSE in February of this year and there were rumours that even the CME was preparing a bid in what was shaping up to be a Game of Thrones showdown for control over the London exchange. However in May of this year, ICE abandoned its bid citing that LSE executives refused to discuss a buyout, a claim that the company denies. Given the evident attractiveness of LSE to foreign suitors, we urged the Board to demonstrate that it has conducted an exhaustive search for options and prove whether this transaction is truly in the best interest of LSE shareholders.

Even before the so-called ‘Brexit’ vote, European officials publicly expressed their reservations over the deal as pride played a role with officials in both London and the Continent raising concerns over the potential loss of status as a financial hub. French Finance Minister, Michel Sapin, called into question the merits of the deal citing competitive concerns in European financial markets. In this vain, he claimed that the combined entity would be too dominant and could potentially dwarf competition from rivals such as Euronext. Joining the crowd of influential dissenters is Felix Hufeld, the president of the Federal Financial Supervisory Authority or BaFin, Germany’s financial markets watchdog. Earlier this week, in reference to the combined entity’s London HQ, he emphasized that “it is hard to imagine that the most important exchange venue in the euro zone would be steered from a location outside the EU“.

A key argument for the merger’s champions is the cost and revenue synergies post-closing. Whereas they were higher than anticipated by the market, we are concerned as to whether they can be actually achieved with London leaving the EU. At the core of the cost synergies is the harmonization of post-trade platforms (50%) and a combined cost centre (30%). Should the parties to the merger face two different regulatory regimes and be forced to maintain their existing management structures, it becomes abundantly clear that these synergies may not be realised.Moreover, revenue synergies may run into significant roadblocks should the UK and EU fail to negotiate a suitable ‘passporting’ regime that would ensure uninterrupted access to European markets which was the norm pre-Brexit.

Heightened uncertainty does not bode well for the merger and only serves to reinforce our reservations regarding its merits. As we move into unchartered territory and volatile markets over the coming months and even years, executives are in the unenviable position of singing the deal’s praises to both sceptical investors and wary regulators alike. We here at ECGS will not be holding our breath.

30 June 2016

The French parliament adopts the binding the annual Say on Pays vote

The French National Assembly adopted June 14, 2016 a bill making mandatory and binding the annual shareholder vote on the remuneration and benefits of listed companies managing directors. While the Senate could possibly scale down this law, we consider appropriate to reaffirm the principle of agency for the sound governance of corporations.

The controversy over the remuneration of the Renault Chairman & CEO Carlos Ghosn demonstrated the inadequacy of current French governance Say on Pay practices to regulate executive compensation. following the negative vote on the opaque and questionable Ghosn € 15 M. annual compensation, the contempt of the Board deciding to maintain the pay was considered ourtageous.

Proxinvest welcomes the legislative initiative restoring the ultimate shareholders authority over compensation and benefits granted to directors, which should enable to better establish executive compensation on merit and the actual performance, to limit the granting of hidden or unjustifiable benefits, and to ensure social cohesion by a better share of the value created.

The increase of top executive remuneration has not experienced a respite, despite the financial crisis, the individually granted amounts continue to surprise. According Proxinvest, executive compensation of the CAC 40 companies exceeded in 2014 the threshold of € 4 million (+ 6%) not including pensions…

In this context, employers’ organizations AFEP and MEDEF decided to give the shareholder vote on executive compensation, “a mandatory, but without going to make it binding, vote” asking the members of the Board tol make a counter-proposal “within a reasonable time” and make it public.

This attitude was for the shareholders and for many observers a problem of contradiction between the ultimate shareholders AGM authority, which according to Article L 225-100 deliberate and approve both the financial statements and the report for the previous year and the lax and delaying attitude of the AFEP MEDEF committee.

The French National Assembly has since adopted a new Article L. 225-37-2 of the Commercial Code, imposing CEO pay to be least annually subject to shareholders approval: the resolution shall put to the vote a report that will include details the fixed remuneration, variable or performance related items of individuals and the criteria for their determination. Besides , with the exception of fixed remuneration, no payment will be made prior to their approval by the general meeting, and whenever the shareholders general meeting does not approve the resolution, the Board shall submit a new proposal at the next general meeting.

This bill, which is in the French legislative tradition of the control of related party transactions benefiting to corporate officers is also now entirely in line with European best practices including British, Dutch or Swiss.

This new article L. 225-37-2 of the Commercial Code creates a power-cons for nature shareholders to reassure investors in French companies and fight against some deviant behavior sometimes seen in executive compensation. Proxinvest therefore welcomes the new rights of control and the new responsibility entrusted to its equity investors customers and encourages the Senate to adopt this draft law. June 20th. 2016

29 May 2016

Shareholders of RENAULT reject Say On Pay proposal. 1st time in France

For the third “Say On Pay” season and for the first time in France, the shareholders of a listed company, the car manufacturer Renault, rejected the remuneration of the chairman-CEO, Carlos Ghosn. His “Say On Pay” has indeed obtained only 46% of votes FOR.

Proxinvest had called shareholders to block this uncontrolled remuneration of Carlos Ghosn for reasons of lack of transparency and due to a total compensation of € 15m granted by Renault and Nissan which is excessive. Proxinvest congratulated renault shareholders and welcomes this shareholders success and this shareholder engagement should lead to major improvements from the Renault Board of Directors.

In France the vote on remuneration is only consultative according to the AFEP-MEDEF Corporate Governance code even if investors are pushing for the introduction of a binding vote on the remuneration policy, at least every three years like in the UK.

Unfortunately, the high level of criticism of the related-party agreements signed with the French State and with Nissan (opposition rate of 27% and 16% respectively) was not enough to reject the “stabilization agreements” which are very protective in terms of remuneration for Carlos Ghosn. Indeed, he is also Chairman-CEO of the Japanese Company Nissan Motors and his € 8M remuneration from Nissan is likely to be entrenched for now. (Look at the recent French Civil Employees Pension Fund reaction)

The objectives of the Say On Pay system is to encourage a fruitful dialogue between directors and their shareholders. Despite low approval rates of 64% in 2014 and 58% in 2015, renault directors never implemented a good dialogue with the shareholders. Hope the outcome of this general meeting may change behaviours. Proxinvest stands of course available for discussion with the members of Renault’s remuneration committee if they want to better understand the rationale behind Proxinvest negative voting recommendation.

The French glass and building material group had seven years ago a first negative experience resulting from its own potective double voting right statutory provision when Wendel pretended, with about 20% of the Saint Gobain shares , to rule the management… Nevertheless aiming for a tricky acquisition of the successful Swiss Sika, Saint Gobain keeps neglecting the opinions and rights of large communities of employees and shareholders.

Actually, as mentioned earlier on this site, like many Swiss companies, Sika lived under the “protection” of a kind of triple voting right provision which offers to the founder’s family Burckard no less than 52% of the AGM voting rights for an economic ownership of only 16% of the shares held in a private vehicle. Saint Gobain signed the promise to pay some € 2.75 billion, more than twice the stock price, fot this vehicle, subject to securing the benefit of the majority control by June 30th. of this year.

This resulted in a furious alliance of the majority of the current Sika Board with the so called minority Sika shareholders (including our parntner Ethos, the Bill and Melinda Gates Foundation, Fidelity and Threadneedle, plus the Sika management at large, all refusing to the French the benefit of the Burckard clause and obtaining until now some success with the Swiss courts…

Actually, the Saint Gobain attempt is and should remain, in Proxinvest opinion, not sustainable.

Proxinvest always actively opposed to double voting rights and any other protective devices. This Sika case is a perfect demonstration of the perverse impact of such provisions. Besides, Proxinvest engages for a serious reform of the control of related party transactions by the non-beneficiary shareholders: the lack nowadays of any serious protection of sharehodlers against the self-dealing of a controlling sharehodler should in itself qualify the Saint Gobain strategy as vulgar theft.

At its current purchase price the potential 16% stake in Sika would return a dividend of about 1% of its investment to Saint Gobain. In order to increase the needed cash generation Saint Gobain announced important “synergies” – a polite word for transfer pricing – and already dares to announce that most of these would be located in the current Saint Gobain group. Given the legitimate opposition of the Sika shareholders the implied strategy of the French is plain plundering.

Actually Pierre-André de Chalendar, the French CEO should try to persuade the spoled kids, the Burckard siblings, to share the control premium with all the other shareholders. Otherwise the lucky outcome of its Swiss franc forex protection taken by the French should be enough return for such an ill minded “strategic operation”.

28 March 2016

French Yellow pages individual shareholders put their company under pressure

by Pierre Henri Leroy

In a unique case of general investors mobilisation the individual holders of Solocal Group, a specialist of local advertising, recovering from the KKR led LBO on the telephone register business of France Telecom, will possibly force the company management but also the French Government and the AMF to act and better protect the minority holders.

Some 602 individual holders of Solocal Group (formerly the Yellow Pages) have regrouped to face an explainable drop in the share price which reached 3.50 euros in late February at the bottom of a descent into hell that lasts for years. This trend followed the leveraged acquisition of the France Telecom subsidiary by financiers clustered around the famous American fund KKR for three billion euros. Proxinvest had then bought in 2005 at a price of € 18.82 before regrouping of the shares, i.e.teh equivalent of € 564 a share which traded at € 3.60 at the end of February 2016!

These investors secured by the recurrent nature of Yellow Pages business, full of contempt for small investors had transferred to the company the huge debt they had contracted at the expense of the company listed minority. But the unhealthy ambitions later faced with the difficulties of this group to cope with the Internet competition: finally all the shareholders took the loss resulting from poor management values and predatory interests backed by banks. These LBO techniques encouraged by some major banks do much damage and have never seriously reined by regulators.

More recently, helped by strong national position, the company renamed Solocal Group, was able to restore its strategic model, to conquer his place in the internet as great player in local advertising: ultimately in 2014 at the price of a capital increase at the adjusted price of 15 euros, the company found a positive cash flow and became even profitable. The 2017 maturity of the € 1.2 billion remaining debtwas no longer a problem, but this deadline probably offered a temptation for some raptors …

Actually the contempt of shareholders was at work at Solocal in 2014 wher poor financial communication dropped deaply the share price in 2015. A first gruop of 300 holders led by former Chief Euris and EEM CEO , Baudoin de Pimodan, so just wrote a following letter to the Board of Solocal Group, its Chairman Robert Metz and its Director General Jean- Pierre Remy.

Proxinvest has likewise wrote to President Robert de Metz to question the Solocal communication “the cryptic mention of debt negotiations coupled with results that have been damaged by a social risk provisioning that appeared excessive, have discredited the stock and the company management.”

Once again the AMF is challenged on its treatment of misleading statements by companies and its general lax attitude facing sharehodlers orgnanised dilution.

Unless the company changes is attitude and better defend sharehodlers with a serious commitment not to open the capital under the 15 euros thershold there will be a lot of action at the AGM of Solocal group.

Investors Voting policy: Introduction of the quality of the performance conditions attached to the CEO’s pension scheme in France

Significant changes to pension regime of French top managers were introduced by Law No. 2015-990 of 6 August 2015 for growth, activity and equal economic opportunities (“Macron Law” ).

Among these changes, the introduction of performance criteria for determining the increase in pension entitlements due under a year is a major innovation that should help make these additional pensions more acceptable and better controlled. Boards of directors and shareholders must also fulfill their new responsibility by adopting sufficiently demanding performance conditions in order to avoid the grants of huge pension to poorly-performing managers.

The proxy firm Proxinvest is launching new voting criteria for investors willing to amend their voting policy by requiring challenging enough performance conditions. Indeed, Proxinvest’ proxy voting solutions allow investors to control their own voting policy and their final vote decisions while outsourcing the monitoring of their voting policy to Proxinvest.

In the event of defective performance conditions, an investor who decided to activate this criterion in its voting policy will therefore receive a voting alert before the general meeting.

For information on this service, contact Proxinvest using the contact form or call us at +33 (0) 1.45.51.50.43

For the record, the new Article L225-42-1 of the Commercial Code now reads:

“In companies whose securities are admitted to trading on a regulated market (…)

Are prohibited remuneration, allowances, benefits and options rights granted to the chairman, CEO or deputy CEO under pension obligations mentioned in the first paragraph of this Article, if the benefit is not subject to compliance with conditions linked to the beneficiary’s performance assessed in relation to those of the company he chairs the board of directors or exercise the general management or delegate general management. (…)

The submission for approval of the general meeting pursuant to Article L. 225-40 of the subject of a specific resolution of the general meeting for each beneficiary. This approval is required at each renewal of the mandate exercised by the persons mentioned in the first paragraph. (…)

The Board annually checks, prior to the Ordinary General Meeting, compliance with the required performance conditions and determines the increase, under that FY, in rights granted to the chairman, CEO or deputy CEO in respect of defined benefit plans mentioned in Article L. 137-11 of the Code of Social Security.

The conditional rights mentioned in the seventh paragraph of this Article shall not increase annually by an amount greater than 3% of the annual remuneration serving as reference for the calculation of the pension paid under these schemes.

No conditional right under the activity of chairman, CEO or deputy CEO may be granted if it does not fulfill the conditions set in the seventh and penultimate paragraphs. “

6 January 2016

Overboarding : progress expected from the new Fonds Stratégique de Participations

Fonds Stratégique de Participations (FSP) is a long-term investment vehicle created by some French insurers (BNP Paribas Cardif, CNP Assurances, Crédit Agricole Assurances (through its insurance subsidiary filiale Predica), and Sogécap (Société Générale Group), later joined byGroupama and Natixis Assurances. They invest jointly in the share capital of a limited number of listed firms. In June 2015, the Fonds Stratégique de participations invested €350M in Zodiac, a French company reputed for its inflatable boats (ZODIAC AEROSPACE (ZC – FR0000125684).

The Fonds Stratégique de Participations will have a seat on the Board of Directors and will be represented by Florence Parly. Florence Parly is graduated from IEP (Institut d’Études Politiques) and ENA (École Nationale d’Administration). She is deputy CEO of the French railway company SNCF, in charge of Strategy and Finance. She started her career at French ministries, then held political duties before joining the private sector at the French airline company Air France.

She already sits on the Board of two other listed companies (Altran and Ingenico). All-in, she holds an excessive number of time committments according to Proxinvest. Indeed, while being executive of a non-listed firm (SNCF), the availability required to perform that duty is very high.

The French AFEP-MEDEF corporate governance code recommends that an executive should not hold more than two outside directorships.

While a seat for the Fonds Stratégique de Participations is justified given its investment, Proxinvest, the French partner of ECGS, recommended in its ECGS proxy report to oppose this election to the Board of ZODIAC due to the excessive number of mandates. The Fonds Stratégique de Participations should adopt in the future a clear governance policy to contribute to the best governance practice of the Paris marketplace.

5 January 2016

Proxinvest, this year’s French general meetings have made the 2015 season a banner year for shareholder activism!

The resistance campaign against the Florange law (which reintroduces double voting rights and the possibility to block public offerings) has, essentially, brought the largest investors together against this degradation of minority shareholders’ rights. The hottest cases have been Bolloré’s rise in Vivendi’s capital against the backdrop of contested communication, like that of the state together with Renault and, finally, the many rejected items at Orange.

The strategic operations of Saint-Gobain and Lafarge in Switzerland have not shown great vigilance from French leaders with regard to minority shareholders’ rights.

Finally, Proxinvest has written several letters to the AMF (Financial Markets Authority) and the CEOs of companies such as, but not limited to, Alstom, Hermès International, Sanofi, Renault, Vivendi and Norbert Dentressangle regarding important communication and transparency towards shareholders issues and the still insufficient respect of minority shareholders.

19 November 2015

Multiple voting rights – illusion of reward of long-term shareholders

by Natalia Ponkratova (Proxinvest)

European overview

Italy and France has recently changed their legal framework to introduce or to automatically offer double voting rights to shareholders. In France, the 3rd paragraph of the article 225-123 of the French Commercial Code automatically offers double voting rights from 2016 onwards to shareholders of listed companies who hold shares in registered form for at least two years, unless a company opts-out and modifies its articles of association stipulating otherwise.

The France has become a European champion of non-compliance with the equal treatment of investments in shares and voting rights.

In Italy, a law approved in August 2014 allows listed companies to assign an additional voting right to shareholders who are registered in a “loyalty register” for at least 24 months. It is the same procedure as in France, but in Italy the possibility to introduce the double voting rights must be approved by the general meeting with a supermajority vote of at least two-thirds (or the higher percentage provided by the Bylaws).

In CAC 40 index, only eight French based companies kept “one share – one vote” approach. In Italy, only 16 companies approved the double voting rights: one is a large-cap (Campari) and six are mid-caps (Amplifon, Astaldi, Dea Capital, Hera, Maire Tecnimont and Zignago Vetro). However, several large companies are evaluating the possibility to introduce double voting rights in the next future.

The double or multiple voting rights are often presented as a form of recompense for long-term shareholders. ECGS has contested this type of unequal treatment of shareholders and especially its hypocritical presentation. The use of multiple voting rights or shares without voting rights introduces distortions which allow maintaining a control without holding the corresponding economic interests and, as the result, economic risk. Furthermore, the introduction of double voting rights, commonly based on holdings of share in registered form, likely disadvantages many international and institutional investors as most of the French and non-French investors cannot register their shares due to excessive administrative or financial burdens.

Double voting right does not help to stabilize the capital neither. Indeed, high frequency traders or speculative investors do not care about voting. Only responsible investors voting their shares and not holding their shares under the registration form (“actions au nominatif”) will be (negatively) impacted by double voting rights as they will be diluted in % of voting rights.

It is surely not in the interest of an investor to accept to be diluted in terms of voting rights, even more when this investor has a fiduciary duty.

The « one share – one vote » principle has been supported by investors and theirs associations for a long time, for example by Proxinvest, ECGS, the French Asset management association or by ICGN (International Corporate Governance Network). ICGN also reminded that the registration of shares (“enregistrement au nominatif”) is not compatible with the management of financial assets for institutional investors, especially for non-resident investors.

« One share = One vote » is a longstanding principle of equal treatment of shareholders. It is absolutely necessary to ensure that minority shareholders can protect their interest and participate responsibly to the corporate control mechanisms. “One share – One vote” is a fundamental cornerstone of shareholders trust and good market valuation.

ECGS has realised a short overview and present here its results. Sure enough, ECGS found out that the multiple voting rights are more often used to reinforce the voting power of dominant shareholders. This tool allows keeping control of the company while reducing the rights of the minority shareholders.

All 16 Italian issuers approved double voting rights have a controlling shareholder with more than 50% of shares. In France, we saw that the French state did not hesitate to raise its stake in car maker Renault in order to ensure the adoption of double voting rights, so did the strongest minority shareholder in Vivendi, French tycoon Vincent Bolloré.

Multiple voting rights used to reinforced voting power of dominant shareholders

Let us imagine an observer free from any interest and from any external pressure who would return to Europe after a long journey and period of isolation from the rest of the world. He would sit at a Parisian street café with a stack of newspapers under his arm. He would start reading voraciously the European press. With a fresh pair of eyes, away from the influence of social networks and institutional misinformation, he would make a connection between all the relevant pieces of information. This would immediately spark a range of reactions, in particular Stupor, Anger and Despair!

Would the Horsemen of Apocalypse already be at the gates of the enlarged European Union? The EU is a body of 28 member states representing 503 million inhabitants. European citizens have been living in peace for the past seventy years. They now enjoy one of the highest standards of living in the world. They seem to rest quietly in a self-indulging comfort while confidently looking forward to the imminent creation of a European political union. Could all the achievements and sacrifices of two generations be jeopardized?

Stupor, of course, this is simply not possible! But let us face it: the destructive process is currently under way. It is looming ahead on the eve of the building of the rocket’s third stage: the political union would have completed the economic and monetary union and then the banking union, followed by financial regulation, revamping of corporate law and governance principles, harmonization of various tax systems and social gains.

Anger, after bewilderment comes anger. It is our fault. In other words, it is the fault of industrialized countries and nuclear powers who patrol the world. This destructive power expresses itself in two ways:

- On the first hand, social imbalances, especially unemployment of young graduates combined with household and State over indebtedness, could provoke a full scale social upheaval -thanks to social networks - and a risk of disintegration of the EU. Despite progress made in the field of corporate governance and ethics, lofty CSR principles, emergence of the SROI ratio, primacy of human capital, the taking into account of the interest of future generations, businesses do not create jobs. The euro zone economy doesn’t return to growth. Defense industrials’ voices have become prevailing.

- On the other hand, vast military spendings were voted by Parliaments of democracies feeling threatened. They will set the conditions to make war in the framework of NATO, or outside in various parts of the world such as Africa, the Near & Middle East, Ukraine. These spendings have been justified by the necessity to fight the mythical enemy that is international terrorism. In order to combat these evil spirits, methods from the past, such as inquisition (Patriot Act, French Law on Intelligence) and burning alive (by long-range missile and bombings), are being used.

Generating conflicts and civil wars brings about chaos in developing or emerging countries weakened by a difficult economic and industrial transition. It also results in moving populations outside conflict zones and creating migratory flows that are difficult to control. Let us take an example. The war, that unleashed NATO forces in Libya provoked chaos and the displacement of 2 million Libyans to Tunisia - 20% of the population of this country. This happened a few kilometers from the European Union.

How many migrants from Libya, Mali, Nigeria, Somalia, Yemen will reach in the next few months Europe from Tunisia and Libya?

They will be encouraged by the current example of the inflow of Syrian refugees, that are carefully organized fleeing from combat zones and liberating the territory from future decisive confrontation. As a child in 1940, I experienced the arrival of refugees in French free zone from Netherlands, Belgium, North of France, fleeing the invasion of the German armed forces and the Allied bombing campaign.

Despair finally comes. These two aspects could interact and cause a chain reaction that destroys the equilibrium of civil society and European cohesion. This would inevitably trigger the disintegration of the European Union in a short timeframe.

It is still time to react with daring, courage and determination. Tomorrow it will be too late as the Horsemen of the Apocalypse already are at the different gates of Europe.

Jean-Aymon MASSIE, President of AFGE

French Corporate Governance Association (AFGE)

www.afge-asso.org

2 November 2015

Non compliant companies: a come-back of the former Eiffage tycoon Jean-François Roverato

by Pierre Henri Leroy

The unexpected disappearance of Eiffage CEO, Peter Berger, is certainly a test for this group of construction and public works. Its board has awarded former President founder, the imperious Jean-François Roverato, 71, the interim.

The lack of succession plan at Eiffage accused here again, as we observed last year at Total, another common non-compliance of french companies with the AFEP-MEDEF Code which states (1) “The selection or nomination committee (or an ad-hoc committee) should establish a succession plan for executive directors to be in a position to propose succession solutions particularly in the event of an unforeseen vacancy. This is one of the main tasks of this committee, although it can be, if any, entrusted by the Council to an ad hoc committee. ”

Note that the Eiffage “lead director” , another recommendation said Code, was the former CEO Jean-François Roverato, Honorary Chairman of Eiffage, and obviously not independent … In these cases of unitary Boards the only presence of a true successor appointed would nevertheless a useful protection against bad surprises or any abuse of power.

Eiffage shareholders have long been victims of authoritarian governance and the stock price here suffered another time : remember the succession of quasi-founder, the charismatic Jean-François Roverato, had, in his time, successively approached and discouraged two or three candidates until the very happy discovery of an outside young entrepreneur, the late Pierre Berger.

Proxinvest maintains here its criticism of the governance of Eiffage, which protectionism was increased again with the introduction this year of a double voting right, approved by the Caisse des Dépôts, the second largest shareholder behind employees with 20% and soon 27% of voting rights via Bpifrance Participations

Let’s add not independent Board of Directors where the presence of the founder remained essential and which tabled in 2015 the increase of the term of office of Directors from three to four years.

Recall that the company shareholding is locked by the employees SICAVAS fund by the group management through mysterious statutes… The case in which SACYR Proxinvest was the first to criticize at the time the Eiffage CEO to make a coup against its Spanish shareholders by depriving them of the right to vote in the assembly, with the complacency of the AMF, will have been partially tried to date: the company was found guilty but the Spanish shareholders were victims.

Like last year, the presentation of the remuneration of Pierre Berger communicated by the company or the target bonus, neither the weightings of the quantitative criteria of the bonus or the objectives … Although the amounts involved and the compensation structure were acceptable, Proxinvest could not recommend approval.

Wait and see.

25 September 2015

Seventeenth report on the remuneration of the SBF 120 index executives

by Hugo Dubourg

Proxinvest, the French proxy adviser, publishes his seventeenthreport on the remuneration of the SBF 120 index executives.

After two years of decline, the average total compensation of the Chief Executive Officers of the CAC 40 index reaches € 4.21 million in 2014 (+ 6%). In contrast, the average total remuneration of the SBF 80 index (next 80 companies after the CAC 40) falls by 3% down to €2.36 million after two consecutive years of increases.

The remuneration structure stays faulty as 40% of the Chief Executive Officers have no long-term remuneration of any sort. Indeed, the remuneration structure is focused on short-term: the average fixed remuneration (€ 1.042 million) and bonus (€ 1.308 million) remain stable in the CAC 40 index. The 6% increase in total remuneration is mainly due to exceptional elements (severance payments) and the increased use of performance shares, which now account for 29.1% of the remuneration of the CAC 40 index CEOs. Stock options have almost disappeared in France as they now account for only 4.1% of total remuneration. In the coming years, changes in legislation (“Loi Macron”) aiming to promote free share plans will further fuel the performance sharesboom and the stock-options decline.

The report details the different components of executive remuneration in the SBF 120 index. With € 15.2 million, Carlos Ghosn, CEO of Renault-Nissan, is the best paid CEO in 2014. His massive increase in remuneration (+ 56%) clashes with the context of efforts required from Renault employees through a competitiveness agreement. For years, Carlos Ghosn has been paid from Renault as well as from Nissan (of which Renault holds 43%). For the first time, his Nissan pay tops one billion yen, the equivalent of € 8 million. In addition, Nissan does not disclose the nature of the remuneration and the amount appears disconnected from Japanese practices (Ex: Akio Toyoda (Toyota) € 2.7 million, Takanobu Ito (Honda) € 1.16 million).

His Renault pay package was challenged by the French state, with only 58% of the votes FOR. The Say On Pay would have been rejected if the majority of foreign investors had not voted FOR the resolution according to Proxy Insight (including Alliance Bernstein, CPA, Blackrock, Calpers, CalSTRS, Capital, Deutsche Asset Management, Fidelity, Henderson, Legal & General, MN, Norges Bank, Ontario Teachers, TIAA-CREF, Vanguard). Proxinvest will conduct a survey among these shareholders to determine if the lack of information regarding the remuneration paid by Nissan in the meeting documentation has misled them.

Christopher Viehbacher, former CEO of Sanofi is the second best paid executive with € 12.5 million of total remuneration. While the performance conditions of his severance pay previously approved by the general meeting were not met, administrators granted him a new settlement payment of € 4.2 million. In addition, the presence requirement on the performance shares and stock options was lifted.

With € 11.1 million, Bernard Charles reaches the third place of our ranking. For years, the massive performance sharesplans have placed the CEO of Dassault Systèmes among France most paid executives. In 2014, Bernard Charles has received an amount of €8,718,000 of performance shares according to Proxinvest (€5,620,500 according to the company). The valuation gap is explained by the weakness of the performance conditions according to Proxinvest.

Ten years ago, Proxinvest fixed a maximum socially acceptable remuneration of 240 times the minimum wage (“SMIC”) aiming to encourage investors, directors and executives to focus not just on transparency and performance but also the amounts allocated. While thirty one CEOs of the SBF 120 index exceeded the limit of 240 SMIC ten years ago, they are now sixteen and Proxinvest ceiling seems to have had a deflationary effect. To go further in the analysis of the necessary social cohesion, Proxinvest backs the transposition of the CEO Pay-Ratio in the French law.

The directors fees increased by 1.3% while for the first time in six years, the remuneration of non-executive Chairmen increased (+ 10%), Philippe Camus (Alcatel-Lucent) being the highest paid (€1,36M, with the allocation of performance units) and Franck Riboud (Danone) aspiring to take the first place with a fixed remuneration of € 2 million as of 2016.

The second season of “Say On Pay” in France saw no rejected remuneration, but issuers were challenged with increased intensity (approval rate of 87.87% in 2015 against 91.69 % in 2014 in the SBF 120 index). The votes have focused the meetings on remuneration and transparency increased. Only 29.2% of companies met our recommendations. However, Proxinvest is delighted to see his opposition rate decrease as more companies adopt good practices. Many improvements are still expected to ensure reasonable and transparent remuneration policies, aligned with long-term performance. Directors, including members of remuneration committees, will be expected to dialogue with shareholders on these issues.

The 2015 proxy season was agitated by controversies related to severance agreements: Michel Combes at Alcatel-Lucent, Chris Viehbacher at Sanofi, and Patrick Kron at Alstom. These controversies have highlighted the current lack of regulation and the inadequacy of the ex-post advisory votes on remuneration. Against excess, shareholders rights must be strengthened, and an ex-ante vote on the remuneration policy, as it exists in the UK, appears as a necessary reform.

22 July 2015

We mourn André Baladi, private financier, the European founder of the ICGN

I met André Baladi, a citizen of Geneva, in Paris in 1994, thanks to Stephen Davis then at IRRC. André was passionately inhabited by its active shareholder role with the major European listed companies. He had thought before everyone here many corporate governance problems and considered essential that the major professional investors be engaged to improve corporate behavior. A former Nestlé executive, he wanted to help for the creation of Proxinvest proxy advisory services and always supported our European consortium ECGS.

As a correspondent member of the US Council of Institutional Investors and as an individual investor, not as an employee, he invited me in 1995 to join in Washington D.C. the group which created under his vision and that of Bill Crist, the International Corporate Governance Network (ICGN), a wonderful organization that has just celebrated its twentieth anniversary in London.

With Lebanese nationality, he was raised by Jesuits in Alexandria (Egypt). His passion was the European Mediterranean culture, he told me often that that he was probably of Jewish ancestry, had kept in Geneva a Christian faith and a French heart.

I called him on the phone before the London conference, and he seemed very tired. Actually, soon eigthy years, he was suffering from a bad cancer and Sylvia, his dear wife, told me that he did happily not have time to suffer. She said that his ashes will be scattered on the Geneva lake and thereby will return through France to his beloved Mediterranean Sea.

To Madame Baladi, to Alex his son, to his daughters Viviane and Sybille, all of us who loved André bring here our deep sympathy.

25 June 2015

Alstom : Proxinvest suggests Kron to drop its parachute in four questions to the company and AMF

Tuesday, June 30 will be held the Annual Meeting of Alstom. Proxinvest poses here to the company and to the AMF four questions as to the company’s compliance with legal requirements regarding shareholders information and the treatment of the CEO special remuneration.

Alstom announced in 2014 a major asset sale to the US General Electric. Hereby Proxinvest asks four questions on the regularity of the Extraordinary Shareholders General Meeting of December 2014, on the legality of the information given on the nature of the misconduct which resulted in fines by the US DoJ, on the legality of the information provided on the proposed special remuneration for the CEO and about a possible withdrawal of this remuneration in view of its legal risks and in view of the company performance.

I Our first question concerns the legality of the shareholders EGM of December 2014 asked to rule on the sale of the Alstom Power (electricity generation) and Grid (Networks)), and renewable energy businesses to General Electric.

According to the notice of the Extraordinary General Meeting and under the Purchase Agreement, “the completion of the Transaction is subject to approval by the general meeting of shareholders of the Company by a majority of two thirds of the votes cast (the “Majority”). However, Alstom informed only the day before the General Meeting about a substantial change in the selling price: the US announced fines for acts of corruption, which was, to be borne by the purchaser, was not as the Plea agreement prepared with the US DOJ had just stipulated that no part of the fine could not be transferred to General Electric as part of the planned disposal: In the words of CEO at Assembly, the $ 772 million dollar (720 M. €), representing the bulk of the loss recorded for the group in fiscal year 2014/2015 would be offset by commercial arrangements… Moreover, reading the joint ventures organized conditions with General Electric and the odd arrangement between Bouygues and the State it appeared in 2015 that what was presented as a 50-50 joint venture an alliance or an association between equal partners was inevitably shifted into a differed sale of Alstom’s assets to GE at preset prices.

Therefore, Proxinvest, which despite reservations had recommended a positive vote, regretted publicly for the first time in its history to have issued this positive recommendation, calling it unacceptable given the unexpected change in the transfer price and the inaccurate conditions of this agreement.

In view of a substantial change on the eve of an extraordinary general meeting in the conditions of the operation as reported by the Board and the breach of French legal rules on the agenda setting including Article R225- 83 (*) is the vote recorded to be considered as void and should it not require, the project being modified and maintained, a new shareholders consultation, this ime in line with the latest recommendation of the AMF ?

II Our second question is on the quality of the information given on the nature of the misconducts that resulted in substantial fines.

In 2010, the US Department of Justice (DoJ) had begun investigating the Group’s subsidiaries on the facts of corruption and prosecutions have resulted in fines imposed to the Group for approximately $ 772 million, the exclusion of subsidiaries of tender procedures and may lead to further costly civil actions for the group and its shareholders.

A subsidiary of Alstom, Alstom Network Schweiz AG (formerly Alstom Prom AG) agreed to plead guilty to violation of US anti-bribery rules and Alstom SA pleaded guilty to failure to comply with the FCPA provisions on bookkeeping accounting and internal control (« The Defendant did knowingly falsify its books, records, or accounts such that its books, records, or accounts did not fairly reflect the transactions and dispositions of the assets of the Defendant »). The “Plea agreement” (Case 3: 14-cr-00246-JBA Document Filed 12/22/14 Page 5 2 and 3) says that [1] « The Defendant did knowingly fail to implement a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions were executed in accordance with management’s general or specific authorization; (ii) transactions were recorded as necessary (l) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (ll) to maintain accountability for assets; (iii) access to assets was permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets was compared with the existing assets at reasonable intervals and appropriate action was taken with respect to any differences.” ” The Defendant is pleading guilty because it is guilty of the charges contained in the Information.”, ” The Defendant admits, agrees, and stipulates that the factual allegations set forth in the Information are true and correct, that it is responsible for the acts of its officers, directors, employees, and agents described in the Information…”The Defendant failed to voluntarily disclose the conduct even though it was aware of related misconduct at Alstom Power, Inc…”

However, the only explanation in French that we find on the fines for the shareholders in the Annual Report is included in the risk factors chapter “Thus, the violations covered in the agreement with the DOJ are essentially the use of external consultants Alstom paid these according to the success of the projects in support for the internal sales teams. ”

We also observe that if the Chairman’s report on internal control procedures and risk management has grown considerably in recent years to almost ten pages, it does not refer to the admitted control breaches, nor the Report of the external Auditors prepared pursuant to Article 225-235 of the Code appears to us to have been the same and unchanged for ten years. But we have seen above, that the parent company, which does not seem to have it, directly employed external consultants, has fully admitted his guilt on various breaches of control and diligence.

Can we therefore consider as accurate, sincere and exhaustive that the breaches admitted by the company came from only “essentially the use of external consultants” and can it be said as do the reports of the President and commissioners accounts that there has been no breach of the group’s control procedures?

III Our third question concerns the legality of the information on the proposed exceptional remuneration for the CEO Patrick Kron:

The valuation of the outstanding contingent remuneration for Patrick Kron, approved by the Board of Directors (the counter-value of 150 000 shares as on the date of completion of the transaction with General Electric), is a variable compensation according to the Code, but its amount does not appear for the year 2014-2015 in the Summary of compensation table. The absence of this remuneration decided in 2014 payable in 2015 as part of the 2014-2015 pay is not in line with the Article L 225-102-1 and it reduces from € 6.5 million to an official amount of € 2.5 million the pay of Patrick Kron for 2014. The accounting provision, which we must be found in a footnote on page 143 of the consolidated accounts only amounts to € 2,771,000 whereas the current price stands at € 4,026,000.

There is a failure to comply with the Article L 225-102-1 as well with the completeness required by the Code in its recommendation 23.1 renewed by recommendation 24: “A comprehensive information must be given to shareholders so that they have a clear understanding not only of the individual compensation paid to executive officers, but also the policy of determining compensation is applied. ” While Code Recommendation 25 asks the company to provide an explanation when a recommendation is not applied, the omission of the compensation paid by Alstom is nowhere justified in the document. Recommendation 24.3 on the Consultation of the shareholders on the individual remuneration of executive directors requires that it covers the elements of compensation due or awarded for the year ended on each executive director including “advantages any kind ‘. This special remuneration for Patrick Kron is mentioned but is amount is not included in the Board’s report for the Say on Pay vote : on the Exceptional compensation line is indicated oddly “No amount payable in respect of the year”.

Our question therefore is: does such deliberate concealment or spreading of a major compensation item proposed for the CEO for the financial year 2014-2015 in violation of the law, constitute or not an inaccurate and misleading information on the CEO remuneration?

IV Our last question is about the appropriateness of a withdrawal of this exceptional remuneration both in view of its legal risks and its lack of alignment with the performance of the company.

The elements of irregularity and non-compliance mentioned above are associated with a diversion from the legal rule applicable to severance payments.

Recall that the company originally had decided for a severance payment for the CEO subject to the “recognition of the beneficiary’s performance conditions assessed in relation to those of the Company.” The Board took note on 4 May 2009 of the resignation of the CEO Patrick Kron to such indemnification. Then Patrick Kron at the end of 2014, announced his departure at the closing of the strategic transaction announced and confirmed this decision in the Reference Document. It is clear that this voluntary departure could have been associated either to with an exceptional additional variable remuneration regularly declared or to the grant of a conditional severance payment within the legal framework of Article L225-42- 1 But in the latter case, the compensation should be both subject to performance conditions and to a prior approval of the general meeting with a specific resolution under Article L. 225-40. As recalled by the AFEP MEDEF code “The law gives a major role to shareholders submitting such predefined allowances paid to the cessation of executive Directors functions. It requires full transparency and submits severance to performance conditions. These performance conditions should be assessed on at least two years. ”

Nothing thus prevented the Board to choose this route in 2014, but Patrick Kron is also Director of Bouygues, and the leading shareholder of Alstom would not have validly participated in the vote of such severance pay.

The Board decided for the easier formula of an exceptional bonus within the meaning of Article 23.2.3 of the AFEP-MEDEF Code, which was not reported as we have seen above, in line with legal rules. This exceptional compensation was capped at twice the total remuneration in 2014/15, Patrick Kron, or € 4,936,000: this reminded the AFEP-MEDEF ceiling of severance pay when subject to performance conditions and to special vote. The procedure finally chosen and looks like a diversion from the legal proceedings under Article L225-42-1, but it also appears that the amount create concerns. This amount does not seem to fully satisfy the recommendation 23.2.3.du reference code, since its magnitude does not seem “balanced”. Capped at € 4.9 million, it is at he current stock price a percentage of 400% of the fixed remuneration part, and in Alstom shares, representing it represents almost ten times the personal investment of Patrick Kron (16,011 shares). This amounts appears not aligned to the changes investment value as perceived by shareholders as the Alstom stock price after a happy surge following the 2003 State support and the and the arrival of Patrick Kron declined steadily for eight years since 2008 and is now less than half of its 2008 level.

Our final question is: In view of the irregularity of the remuneration adopted procedure, which puts in risk the company and the unjustified amount in the current context, should the CEO of Alstom, upon the example of his predecessor, renews its 2009 waiver to any severance pay?

JPMorgan CEO Jamie Dimon has criticised on May 28 shareholders who use proxy advisers as ‘lazy’ and ‘irresponsible’. The chief executive of JPMorgan Chase told investors that shareholders should make up their own minds rather than use the recommendations of ISS or Glass Lewis, the main US proxy advisers. “God knows how any of you can place your vote based on ISS or Glass Lewis,” Mr Dimon said at the Sanford Bernstein conference. “If you do that, you are just irresponsible, I’m sorry. And you probably aren’t a very good investor, either. And you do. Believe me. I know some of you here do it because you’re lazy.”

Mr Dimon was clearly unpleased with the turnout of the Say on Pay vote on his 27 million 2014 pay. Only 61% of shareholders supported the bank’s 2014 compensation packages, which included a $7.4 million cash bonus for CEO Jamie Dimon for a total which some one total to 20 up to 27 million according to the Fortune magazine.

Jamie Dimon raises however good question widely discussed as it rare to see an issuer calling so abrubtly his sharehodlers, and it opens an opportunity for dialogue about the state of stewardship. It is true that there are some investors who are more interested in voting as a compliance issue and who have become, to all intents and purposes, zombie voters. That is not a model we support at ECGS.

Rather we see that governance and voting should be integral to the core fund management process and our research is one tool amongst many which helps inform fund managers points of view.

Two years ago JP Morgan interfered in the vote counting process on the contentious vote regarding his separation of chair and CEO in such a way that the Council of Institutional Investors was forced to write to the SEC to demand a review:

Remuneration is not solely an issue of quantum, it’s an issue of performance and accountability; it’s the “window on the corporate soul”.

We are always a bit confused when fund managers say that reading annual reports is “too complicated”. Stock selection research is complicated, it’s what fund managers are paid to do. Where governance isn’t integrated into the investment process then there can, it’s true, be resourcing issues, it’s not reasonable to ask 1 or 2 people to read 200 annual reports a week without some form of assistance. No fund manager I know would make investment decisions without the kind of research and tools available from Thomson Reuters, Bloomberg, FactSet et al, not to mention the billions that are spent on sell side research.

ECGS members, Proxinvest as Manifest in the UK are only paid by investor clients to research the issues which matter to them and present findings in an easy to digest, robust and comparable format. In some cases the simple facts and figures are sufficient to inspire the vote as we can observe from the Say on Pay votes :

ISS and GlassLewis are competitors of us but they have a right to do their job. The fact is also that there are many shareholders who do not want to see egregious pay for under-performance and they do want performance to be sustainable. Many also see the joint chair/CEO appointments as a red-line issue going back a quarter of a century at least.

The final question on JP Morgna is stated by Sarah Wilson of Mnaifest: is Jamie really in touch with his shareholders? Does he understand what they do or is he just listening to what his advisors are paid to tell him?

It’s much easier for an advisor to blame someone else than it is to have that tough conversation about what they don’t like. Most importantly, what does his outburst say about his views on accountability? I think he’s done everyone a great favour by opening up a really important debate.

But on one thing we agree with Jamie : the right thing for investors is not to rely on any one source to make key decisions about the companies they own. A cheap services on proxy voting can turn out to be very expensive for their users while reputations are priceless.

28 May 2015

Orange, a truly contested AGM with an outstanding score for Phitrust and five vetoes

With eight other institutional shareholders, representing more than 1% of the capital of Orange, the PhiTrust Active Investors governance activism fund had included on the agenda of the General Meeting on 27 May 2015 a resolution calling Orange maintaining a simple voting right in the articles of association.

This remarkable investor mobilization got the unseen score of 43.3% as opposed to the double voting rights at theOrange AGM.

An insufficient score but certainly historically exceptional and quite honorable: the power of the French State allied with too well handled employee shareholders ensured control of 30% of the shares and of 44% of votes at the meeting.

Moreover, no less than five special résolutions of financial authorization were rejected: these resolutions may deprive the shareholders of their subscription rights have not reached the necessary two-thirds score, not only averaging 61% : a negligence of Orange teams that should have taken note of the concerns expressed in the 2014 autumn and early 2015 by most of the voting advisory firms.

Let no one say that these pure comfort permissions were needed to finance the group. Let us remind Orange directors as other subservient to irresponsible rulers that Air Liquide, one of the great companies who have refused in 2015 the unhealthy facilities of dthe ouble voting right, has never wished to approve funding authorizations without shareholder subscrition right…

Note also that Anne Lange a director representative for the State received only 78.61% of the votes of shareholders.

So there is at Orange some way to go to reconcile investors interests and a Board complacent to short term politics…

4 May 2015

PhiTrust do it again at Orange : restore the “one share one vote” principle

With eight other institutional shareholders, representing more than 1% of the capital of Orange, the French activist fund PhiTrust Active Investors, advised by Proxinvest, has just tabled on the agenda of the 27 May 2015 General Meeting of Orange a new resolution calling for the retention of the single voting right in the articles the company.

The double voting rights does not meet the proportionality between the capital invested by a shareholder and his voting rights at the AGM.

As aresult in 2014 out of 6 252 resolutions analyzed by Proxinvest at 369 companies there were only 56 resolutions rejected (less than 1%) and some 32 other resolutions at 12 French listed companies should not have to be adopted without the game of double voting rights to controlling shareholder. In short, in France,the number of rejected resolutions should be 50% higher than that observed!

Moreover, this creates a distortion between shareholders since obtaining it requires the registration of registered shares, cumbersome and expensive, a deterrent to foreign investors, pension fund or UCITS, which does not allow them to benefit from these double voting rights.

Contrary to the intention of the law – that PhiTrust Active Investors shares with many shareholders and co-depositor of this resolution – which would encourage long-term investment, we can only see that the device does not facilitate long holding securities. Other more suitable methods exist to retain shareholders.

The adoption of double voting rights only encourages investors wishing to exercise control of a listed company without paying a control premium. This is shown by the recent history of several companies in the CAC40.

PhiTrust Active Investors demand to Orange shareholders vote FOR the resolution calling for maintaining simple voting which ill be published in the company register on May 6, 2015

13 April 2015

Will Renault CEO Carlos Ghosn be the highest paid French CEO for 2014 ?

The Paris financial press is not very factual when it merely explains, such as Les Echos, that the Renault CEO’s full 2014 “package” amounted to € 7.2 million for 2014. But the real figure exceeds the twofold.

This newspaper still quotes the President of Proxinvest Chairman , Pierre-Henri Leroy: “Carlos Ghosn will become the highest paid French CEO here, with pharaonic amounts only obeying fuzzy criteria.” Proxinvest ECGS French member completed its ECGS research report soon available on the on line ECGS Shop.

On reading page 142 of the reference document the posted elements for 2014 actually exceeds € 15 million, unless the Echos considers that the CEO works part time only for Renault since he also chairs and manages the Japanese group Nissan. Indeed, Renault indicates a total compensation due for 2014 as approved by the Board of € 7.2 million against € 2.67 million in 2013. Then, a paragraph indicates that he has receiveda much higher fixed remuneration for Nissan: 995 million yen 2013, i.e. 7.6 million …

The excellent Carlos Ghosn has fetched nearly 15 million euros or 850 SMIC for a employed manager, and even perhaps more, since its 2014 stake of performance free shares is valued € 4.1 million by Renault is now 8 million worth excluding the possible impact of performance conditions, which conditions remain unverifiable …

Renault information on the Japanese compensation paid to Ghosn the previous year is only released in yen a practice which is neither clear nor consistent with French law that requires to “communicate the detailed and otal compensation and benefits in kind paid during the year to Managing Directors and, ./ .. received during the year from companies controlled within the meaning of Article. 233-16. ” Nor is this consistent with the AFEP MEDEF Code for which Completeness is the first principle for determining the remuneration of executive directors…Nor with its application guide (“If the remuneration of executive directors is paid by a third party, whether or not the parent or a shareholder and whether or not invoiced in whole or in part to the listed company, information about it must nevertheless be comprehensive. “)

Clearly the remuneration paid by Nissan in 2013 or 2014 is not approved or considered by the Renault Directors, which have yet this statutory task, nor by its Compensation Committee, which officially refuses to assess all remuneration and perceived benefits eventually paid by other Group companies to the CEO. The committee is therefore lacking in his mission as defined by Article 18.3 of the AFEP MEDEF Code: ” to place the Board in the best conditions to determine the set of compensation and benefits of Executive dDrectors.”

It will seem acceptable to many, amid improved group performance in net earnings, “free cash flow” and operating margin, that the variable pay portion due to the CEO for 2014 grew by 31% to 147.5% of the fixed pay: quantitative criteria were, they say, fully satisfied and qualitative criteria fulfilled at 96% of expectations…

However it is in February 2014, well ahead of the improved results, that the Renault Board granted it 100,000 free shares valued 4.1 million today … And for 2015 it has already promised him again 100 000-called performance shares, indexed allocation for third on the free cash flow (not otherwise specified), one third of the change in the automobile operating margin percentage points from a panel (PSA car, Fiat Auto EMEA, VW and Skoda Brand Brand), and one third of the total share return (TSR).

It is true that Renault on the basis of the strategy adopted by the remarkable predecessor of Carlos Ghosn, is on a nice course, but the engine of the current CEO is clearly not a model of sobriety!

Vivendi’s Management Board and its largest shareholder Chairman of the Supervisory Board, Vincent Bolloré, received the inscription of three external draft resolutions for the meeting of April 17, 2015. Some of the group ‘s answers turned to intimidation if not to misleading information …

The first resolution proposed A, for the maintenance of simple voting rights, following the campaign of Phitrust, advised by Proxinvest. A group of top investors came to support the draft resolution A. These include the pension fund of the British railway, Railpen, the giant of the British insurance Aviva Investors, of the largest Dutch pension fund PGGM, the US giant CalPERS, famous retirement funds of the Californian State employees, the giant collective management in France, Amundi with his little sister CPR AM, a subsidiary of Crédit Agricole, Natixis group’s asset management subsidiary DNCA Finance, the Edmond Rothschild asset management subsidiary and the big French mutual insurance group OFI-Macif.

They all decided to participate to the tabling of this resolution calling for the maintenance of simple voting rights in the articles of association on the agenda of the April 17, 2015 General Meeting of Vivendi.

In line also with the Proxinvest Voting Policy for 2015 we warmly support this resolution.

Two other resolutions B and C on the dividend distribution were presented by P. Schoenfeld Asset Mgt.(PSAM) a New York money manager, and Proxinvest has had the opportunity to discuss with the Management Board of Vivendi and with Peter Schoenfeld on these.

PSAM considers that the proposed payment of 1.3 billion dividend to shareholders is in no way related to the 17 billion seen following the group recent divestments. It proposes a first dividend increase (resolution B) to be paid for the year 2014 to 2,900,000,000 € instead of 1,3 billion € planned, then other massive distribution of cash to September 2015 (resolution C).

Proxinvest ECGS French member completed its ECGS research report soon available on the on line ECGS Shop.

Besides French investors were highly surprised by the content of a letter of March 27 by the Vivendi’s Management Board to its US shareholder P. Schoenfeld Asset Mgt.(PSAM) as published on the company’s website.

Vivendi, which did not earlier mention in the shareholding section of its annual report any statutary or legal ownership limitation for non EC investors, reminds PSAM of this 1986 legal limitation for non-EU shareholders of French television companies : it suggests that in case the investor would exceed 20% of the company this “would very deeply harm the company ” and would obligeVivendi to court assignments leading to potential fines of 5 up to 9 billions euros. In Proxinvest opinion such public baseless astronomical amounts turns to misleading information.

Besides , as in earlier similar cases here, the issuer is threatening shareholders having no takeover intentions of a concerted action with unknown other shareholders only on the grounds that he convinced some investors to vote in favor of his external resolution. This clear is an opportunity for the French AMF to remember that the dialogue among investors and their common intent to vote in the same way , whatever it is, should never in itself only constitutes a take-over concert situation.

Shareholders should not be unduly discouraged to cast freely their vote at the General Meeting of 17 April.

24 February 2015

SANOFI : a generous EUR six million “Golden Hello” for Olivier Brandicourt, a great pharmaceutical mercato

SANOFI has just released the conditions of employment of its new CEO, Olivier Brandicourt, and Proxinvest was invited by the press to comment the news.

A welcome gift, or ‘Golden Hello’, partly conditional and paid over three years and estimated by Proxinvest € 6 million was made to the signing of the contract that binds the former Executive Board member and boss of the pharmaceutical division of German group Bayer to the French top pharma player Sanofi. The company also communicated the generous remuneration terms agreed with its new CEO : a fixed EUR 1.2 million, a variable salary of up to 250% of the fixed plus the annual grant of 220,000 stock options and of 45,000 performance shares: an expectation, according Proxinvest for about EUR 6 million per year as estimated under the generous performance conditions generally used by Sanofi (1). …

Olivier Brandicourt is the ideal boss to Sanofi: a physician and biologist by training, Olivier Brandicourt, a specialist in infectious and tropical diseases, spend as intern eight years at the Pitié-Salpêtrière Hospital in Paris, in 1988 he joined the US laboratory Parke Davis, later bought by Pfizer and then joinded Bayer in 2013 for which he bought a division of Merck and oncology laboratory Algeta … In short, a unique experience, the post was only waiting for this man.

What is however not clear in the Sanofi icommuniqué is that the ‘Golden Hello’ offered, we are told, to Olivier Brandicourt, is actually offered to Bayer as a compensation for the non-compete clause breached by Olivier Brandicourt . Because fact is that the contract of this “great man” forbade him to quit Bayer and join a competitor, and so he had , likely with the help of Sanofi, compromise on an indemnity paid probably by Sanofi to Bayer … why not between four to six million euros?

Proxinvest, who spoke with the Chairman Serge Weinberg , interim CEO since the dismissal of Chris Viehbacherby the Board at the end of October 2014 , thinks it would be wise to explain the mechanics of such mercato dealings rather than to suggest that Olivier Brandicourt received millions without having worked a day for Sanofi.

This case is, for Proxinvest, remarkably illustrative of the current ” économie concentrationnaire”, according to Pierre-Henri Leroy words. Big pharmaceutical companies around the world pay huge salaries and practice an executive mercato perfectly comparable to the trade of football or basketball star players. The industry is very complex, it negociate prices with Medicare authorities and is known for its generous margins : accordingly it pays very high salaries to its top managing directors and employees. The real cause behind these indecent salaries at the top is for Proxinvest in the selection of directors and the convenience of the financial system as a whole for these eprotected employees, tehse excutives adored by our universal banks which are abnormally present in the investment industry. actually the influence of investment bankingh is felt over the selection and remuneration of top exécutives at listed companies. A complication that points to a difficult but possible reform of the financial system in Europe …

Pending such a big reform, Proxinvest is left to recommend investors to oppose the up-coming non-binding vote on the compensation of Olivier Brandicourt, which is simply excessive, particularly in terms of the wage ceiling of 240 minimum wage ( or 4, 8 million euros a year) as retained by Proxinvest for the best employed CEOs.

(1) Sanofi applies the following performance criteria: (i) the net income for each year, then the net income Medium, (ii) the ROA, (iii) leTSR or “value creation” and (iv) the average weighted Performance of Net Income Average Rate, ROA Performance Rate and TSR Performance Rate for the period, but the 2014 CEO package was also at large based on non financial criteria …

12 January 2015

Mr. Macron, there are better things to do!

by Pierre-Henri Leroy

Finance MinisterEmmanuelMacron, asked about the CEO pensions cap, states:“My belief is that any additionalpension systemis legitimateprovided it isbased on acontributionof the employee.Someof thesepension schemes are not: they are simply aperpetualannuity, a deferred incomeforthe personwho has nevercontributed to the plan. This will not bepossible.I prefer asystem that betterrewardsperformance andrisk to asystem that promotes an annuity.»

The Minister’sopinionis respectableand we respect it all the betterthatwe share it.

But is the questionof the CEO pensionnotthe responsibilityof the Directors and ultimately the shareholders of companies?

It is vital that thetaxpayer guarantee be limited toonly bankingdeposits and that these groups no longercompete under the guaranteeof the State umbrella against independent private companiesof manynon-banking sectors.

27 December 2014

Three questions to the Alstom CEO and Board on corruption, profit warning and the special spin-off bonus

AfterBNP PARIBASfined for nearly$ 9 billionimposed forviolationsof USembargoes, it has been the turnof Alstomto settle for a fine of700 milliondollars (560 million euros) in the US after prosecution forcorruptionin Indonesia.Corruption isasold practiceat Alstom according to experts, and Chairman & CEO Patrick Kronwho was incontrol since 2003 does not appear innocent of these criminal operations started in 2004 and pursued until 2009.

French shareholdersin both casesare often outragedthe ambiguousbehavior of theworld’s US policeman, who hasobviouslyfoundits industrialinterest in thestrictenforcement in theLexAmericana for non-US firms, a milder treatement here is that General Electric will finally pay the bill. But this corruption case has certainlyweakened Alstom by the threat of substantialsanctions and the company was possibly obliged to transfer to General Electric itsSteamFrance division (turbinesincludingnuclear), its grid division (power distribution) and and its renewable energy division. Our first question to the Board is therefore was it any early arrangement with the US Dept. of Justice escaping top Alstom executives from their personal liablity under the US Foreign Corrupt Practice Act ?

Looking at the deal Financial conditions now, Proxinvest, despite of limited appreciation data forthe valuation of theseassets to be sold, finallysupported the deal on the basisof alleged sincere information providedby the company : the French proxy advisor recommend to vote FOR on the sole andadvisory resolutionproposed at the19 December2014 general meeting. The results ofthe divestedactivitieshave continued todeteriorate sinceitsannouncementof their transfer, but everyone knowshow easy can be the drive of reported resultson longcontractsinsuchactivities, while GeneralEleectriccan drownthis decline including the impact the final DOJ fine in consolidatedaccountsof a much largermagnitude.

In both earlier mentioned victim cases of theLexAmericana, BNP Paribas and Alstom, on should notice thatthe highest levelof senior managementdeliberatelyoptedfor further breaching with the US rules.But the as in the BNP Paribas case Managing Directors who at leasttolerated these illegal behavior and decidedto bravethe public interest are not now under any personal indictment…

How can then the Board justifythe considerablecompensationrecentlygranted totheexecutiveteam asthecompanyreducedits size to a thirdand as its shareholders appears to havelost in the lastyears under Kron ?The stock price pricewas12 eurosthereten yearsthen plummet ted at 80 eurosto drop for nowat28 euros. ButPatrick Kronwhohas seenannual compensation of3millioneuros reduced by 10% in the last five years and while piling a 13 millionprovisionfor retirement will be granted an “exceptional bonus” of an amount equivalentto the value of 150,000shares of the company“nearly 4.1million.How can the Board dare paying so much for“having ensureda sustainablefuture forAlstomEnergy division”while the Alstom group gives upthreedivisions to beconfined to thesinglerail transportation business?The newProxinvest 2015 voting policywill scanseriouslythis “exceptional conditionalremuneration” for this now possibly departing CEO. Itnowrequiresthe inclusion of a clawback” provision for this type situations inthe long-termincentivesfor senior exécutives, as it is truethat the very generouscompensationspaidin the pastto PatrickKroncoveredquestionablebehaviour.

4 December 2014

16th Proxinvest report on Executive Compensation in France

As shareholders of major French groups experienced their first year of Say on Pay, Proxinvest published for the sixteenth consecutive year its report on executive compensation. Its uniqueness lies in the valuation all the various forms of executive compensation (fixed, annual bonuses, fees, benefits in kind, stock options, free shares, cash incentive plans and other indirect forms of compensation).

The analysis of annual reports published in 2014 on compensation due for fiscal 2013 reveals a paradox: the limit of the socially acceptable pay set by Proxinvest (240 “SMIC”, the minimum annual pay, equivalent to € 4.76 million) is now exceeded by 18 executive chairs against only 13 in 2012. Despite this trend, the average total remuneration of executive chairmen of the 120 largest listed French companies slightly increased by 1.2% in 2013 and reached € 2,909,000.

Some virtuous companies and the pressure of the French State, a major shareholder of public companies, therefore had a moderating impact, offsetting the excessive compensation practices of some companies and the average executive compensation in the CAC 40 index was down 2.5% to € 3.968 million, the equivalent of 200 SMIC.

Arnaud Lagardère, General Partner of Lagardère SCA, with € 16.6 million (+296% YOY), is the most paid French CEO in 2013. This unusually important sum for a French CEO is explained by the statutory dividend of 1% of the net income Mr. Lagardère perceived from his company. This statutory dividend amounted to € 13,1M because of the large capital gain made by the disposal of EADS share by Lagardère SCA. The issue of executive compensation in Partnerships limited by shares is raised as the 1% levy of the result can be likened to a form of rent which excludes other shareholders. In addition, the company did not put the regulated agreements report to a vote, which is an infringement of the French law.

Bernard Arnault (LVMH) is in second place of the top, with € 11 million despite results that were not exceptionally bright in fiscal 2013 (+ 2% in current operating income, stable net income). Mr Arnault benefited from an annual bonus of € 2.2M, a sum unchanged from 2008 to 2013. He was awarded a performance share plan whose conditions are particularly undemanding. His family holding company, Groupe Arnault SAS, benefit from business relationship with LVMH (net balance of € 3m) and again the law seems poorly respected since Groupe Arnault SAS seems to vote on the special report on regulated agreements at the AGM.

The former CEO of Havas, David Jones, is in third place after the payment of a severance payment of € 5.4 million, although this does not seem to comply with the AFEP-MEDEF code of governance as the departure was not officially constrained. Here again, the payment of a severance pay unapproved by the General meeting also raises the issue of a non-compliance with the voting procedure on regulated agreements stated in the French Law.

Carlos Ghosn, CEO of Renault-Nissan, is fourth with € 9.7 million. He perceived a fixed remuneration of € 1,230,000, higher than the average of the CAC 40 index, and a compensation equivalent to € 7 million paid by Nissan. The nature of the compensation paid by Nissan and the criteria for calculating it, are still undisclosed despite the requirements of Article L225-102-1 of the French Commercial Code. Taking into account Nissan’s operating margin (4.7%), far below that of its Japanese competitors (Toyota 9% Honda 6.6%) and far from the 8% target announced for the end of 2016 in the Nissan Power 88 plan, the level of compensation seems particularly high.

Chris Viehbacher, former CEO of Sanofi, is fifth with a total compensation of € 8.6 million. It is, however, composed of a € 5 million grant of stock options and performance shares he should not vest because of the attendance condition associated (however the financial terms of his departure are not yet specified by Sanofi). The annual bonus of Chris Viehbacher (€ 1.7 million), illustrates the undisclosed nature of some compensation practices: French boards too often hide behind the excuse of “reasons of confidentiality”, in order not to provide the information about the underlying objectives of the variable compensation.

Beyond the strictly quantum issues also arises the question of the compensation’s alignment with the company’s performance. Proxinvest observed than half CEOs received a long-term compensation in 2013, a cause of concern for investors.

While stock options have almost disappeared in France, certain compensation arrangements are still highly controversial, as pensions cap. Because of the lack of transparency on the subject, the annual cost of pensions cap is not taken into account by Proxinvest (although Arnaud Lagardère, Bernard Arnault and Carlos Ghosn are beneficiaries of such schemes). However, as only 6 CEOs of the CAC 40 index do not have such plans, this matter is not to disregard. The AFEP-MEDEF code of corporate governance is excessively permissive on the subject of pensions cap and Proxinvest encourages companies to replace the generous defined benefit plans by defined contribution plans, more transparent and less costly for shareholders (for example, Veolia Environnement approved amendment by 99.67% of the votes of the AGA).

In 2014, because of a large amount of problems, Proxinvest opposed 70% of Say on Pays.

As of 2015, Proxinvest will recommend extending the performance measurement period of long-term plans to 5 years; Proxinvest will also verify the implementation of shares ownership policy and the introduction of clawback mechanisms.

Proxinvest expects the French regulator to enforce the Law, including section L225-100-2 of the Commercial Code, which requires compensation details and the respect of regulated agreements procedure. Without full compliance with the Law, shareholders are deprived of their responsibility to control the compensation of corporate executives.

2 November 2014

Total : the sudden death of the Chairman & CEO shows the weakness of the regime for succession planning

Shareholdersand employeesof theTotal group havelearned with griefthe death ofChristophe deMargerie,Chairman and CEO, along with three other victims. The sudden deathof a charismaticleaderof great influenceandshockedthe markets. Itis a more serious as the companyis without aCEO andChairman faces a double problem.

Theoutstanding qualitiesof the deceasedcould nothide the risks associated to this usual confusion in France of the twoseparate conflicting functionsin the hands ofone man:on the one handthe role ofCEO, thereal driverof the groupin charge ofdailyoperationsandmanagement, representingthe companyvis-à-vis third parties, missions for whichthe natural qualities ofChristophe deMargeriereceived unanimous praiseandsecondly, the role of theChairman, to monitorthe proper functioningof the company, organizing an directing the workof the Board, including the control the actionof the generaldirection.

As the main but minorityshareholder of the Air France-KLM airline,with16% of capital and voting rights, the French Stateis also Director and as such an insider.

Butinannouncingon September 24on the radio at7:40am,“theTransaviaEuropeproject is abandonedby management,” adding that “theproject is notsuspended for three months, it is removed,” the French State secretary for transportsAlain Vidalies committed an offenseof false information: his statementwasquicklycontradictedaspokesman forthe companyquoted by the AFP Agency: ” We see no change in the negotiations, there is no evidencethat this project isremoved.“

Under ArticleL465-2twoyears imprisonment anda fine ofEUR 1 500000 will punish “the fact for anyperson, to spreador attempt to foster publicly anyfalse ormisleading information aboutthe prospectsorcondition of an publicly listed company.“ While it isexcluded thatthe State prosecutor everprosecutes and as the Managementof theCompany ultimatelyhad to bowto the Vals Government change, the othershareholders of AirFrance-KLM, victims of this criminal attempt to influencethe fateof the group,could legitimatelyclaim for the damagesthat will besuffered as a resultof this move.

Therecent bill adopted to modernize the management of State participations, in which the roleof the Directors appointedor nominated bythe State shareholderwill be distinguishedfrom its otherfunctions, such ascustomer orregulator , is certainly welcome: and therepresentativesof the State at the Boards of companies may be now selectedin “a broader pool, in ordre to benefit from their experience.”

Thanks Godfor our professional politicians ministers clearlyknow nothing about industry and securitiesmarket constraints. As wrotein theFigaroEricVerhaeghe, the former CEO of Apec: “It’s pretty amazing to seea minority shareholder speakingin the press aboutinternal business affairs/ ..The first issueof the. Stateis tostoptransfering hisdecadent management style – which explains theuncontrollabledriftof public spending-. to companies thatare his or for very little “

18 September 2014

Phitrust Active Investors has adopted its shareholder engagement programme for the 2014-2015 season.

The Board of Directors of open-ended investment fund Proxy Active Investors, a SICAV, has adopted its new shareholder engagement programme for the 2014-2015 season. Its initiatives will focus in particular on three themes: a defense of the “One share, one vote” principle in France, the reintroduction of the neutrality duty of the Board in period of public offer and the introduction of “claw-back” provision for executive directors of the banks.

As stated recently by the Novethic RI agency , “Phitrust Active Investors,one of the rare European funds focusing in shareholders engagement for better governance , is proposing the introduction of claw-back provisions in all the Bankers contracts. Because of the accumulated fines against bankers these banks last years including a $ 8,9 billion fine for BNP Paribas following the 2013 euro 446 million against Société Générale then the expected fining of Crédit Agricole accused of Eurolibor rate or derivatives manipulation and whom despite July 2013 denials has created a € 1.2 billion provision for these risks.

1. For a long time, the community of French and international investors has applied the principle of proportionalitybetween capital and voting rights (“one share – one vote” principle) and the principle of Board neutrality for listedcompanies during takeover bid periods.

The French law of 29 March 2014 “aimed at recapturing the real economy” (known as the “Florange” law), reverses these principles by allocating double voting rights by default for holders of registered shares only, and authorising the Board to make any decisions to block a takeover in the event of a bid. The law thus undermines the rights of minority shareholders.

At the same time however, the “Florange” law includes provisions whereby the shareholders of listed companies can re-introduce the principles of “one share – one vote” and board neutrality during takeover bids through amendments to the by-laws.

Proxy Active Investors will introduce a number of initiatives aimed at re-establishing these principles which it considers vital to ensure equal treatment for shareholders and freedom for takeover bids to progress.

2. The increase in fines and legal proceedings under way against banks in many countries (see the recent $8.9 billion fine imposed on BNP Paribas) actually punishes their shareholders.

Proxy Active Investors will engage with the Boards of Directors of listed French banks to ensure that shareholders’ annual meetings can resolve to introduce director compensation systems that include claw-back clauses compelling directors to return bonuses for past years, to improve accountability and control of long-term risk.

28 July 2014

The ECGS since years keeps concerns on the Banco Espirito Santo (BES) governance.

The setbacks of the 2nd largest listed Portuguese bank Banco Espirito Santo (BES) shook the markets :in this listed bank with Crédit Agricole as second shareholder with 15% of capital and three Director seats we discover Madoff style bank management. They are, after the BNP Paribas US fines, perfectly revealing of the perversions which leads the universal banking model, so praised the banking lobby and French Treasury.

The BES stock dropped in eight years from Euro 15 to 50 cents d'ECGS and clients have been warned several times.

For several years our ECGS analyst criticized the incredible protectionist family governance of BES group and its intricate family companies refinancing. Like other Iberian banking groups BES maintained a Board dominated by the family interests as family Espirito Santo owned 25% of BES, now 20% due to an emergency sale, via Espirito Santo Financial Group (ESFG) itself 49% owned by Espirito Santo International (ESI).

In order to maintain control the family overloaded its holding companies with BES group debt and shares plus billions of Angola's debt : then the allowed addition of the asset management for third parties and the usual listed commercial bank business suggested to litteraly "stuff" the BES clients managed accounts up to a billion euros of junk investments in the family interests. It is indeed a crime when the interests and protection of customers are left behind confused interest defined by generously paid managers of State protected multi-business banking groups.

This year as last year ECGS recommended its clients vote against the BES Management report, but the complacency of many international shareholders and banking regulators have allowed the BES Group to sink into the deadly trap of self-possession and outright fraud of its managed clients.

Remind that Portugal Telecom in June bought € 897 million bonds issued by the Spirito Santo Luxembourg unit Rioforte as Portugal Telecom is 10% held by BES, of which PT holds in turn 2%. Brazil’s Oi was not informed of the investment from PT and the terms of the Oi-PT merger will likely be re-discussed. A typical case of national disasters caused by the “relationship capitalism”, similar to so many cases supported by univesal banking in Southern Europe….

This case is a useful warning shot for shareholders on the abuse of shares repurchase whose consequences can often ruin companies.

Were negligent in respect of internal control as the Board never ceased to say "we are in compliance with the laws of all countries where we operate"

Were poorly negotiated with the U.S. authorities continuing to conceal the scale of operations in breach. "

Why BNP Paribas, a French bank active since 1970 in the USA, exposed itself to violate the US embargo against Cuba and Iran in oil trading transactions of its Swiss subsidiary with these countries ?

While France did not share the U.S. desire to ban these countries, the French BNP Paribas acted as poor U.S. citizens (they are not), certainly as good French citizens but, in the long term, as poor responsible bank managers .

This case confirms the inevitable and normal dependency of banks vis-à-vis their state guardianship as if BNP PARIBAS could not pay the final fine, the French taxpayer would be obliged to take the bill and pay. But no worry, only naive bank shareholders will have to loose as the final fine will be precisely calculated.

The banking group knew its problem with the U.S. authorities and acted "in accordance with the laws of each country in which it operated." His defense is casuistic: "I was as a French banking entity operating in the United States, but the operations of my Swiss subsidiaries with the Iranians or Cubans were perfectly legal under Swiss or French rules and did not have to comply with U.S. law. "

The U.S. authorities, who had long known this breach and the disclaimer of parent companies vis-à-vis their 100% subsidiaries, will easily charge the bank. This American imperialism is certainly irritating, but it has its own logic, while the position of BNP Paribas is just confused.

Once again, the case demonstrates the confusion of the universal banking model : " To do, here and everywhere, everything and its opposite with the guarantee of the taxpayer." Remind here that the Glass Steagall Act of 1933, which spun off the banks, also had an important component of geographic limitation of the activity of each bank in only one U.S. state...

The internationalization of trade has led our universal banks to seek dollar deposits to finance the global trade of our major firms: a healthy ambition which exposed the bank to the U.S. diktat, it should have played another card instead of the simplistic primary race for size, that of the European integration and Euro. Over time, the cost of hedging dollar Iranian or other contracts would have lead customers to prefer contracts and deposits in Euro.

Our "big banks" have preferred to play with the larger American interests and, as always, to hide under the carpet the many conflict of interest ...

And, finally, they lead the defense and illustration of this perverse model, and as JP Morgan, Barclays, Deutsche Bank all our universal banks subsidized by the ECB, far frome being exemplary, have foolishly took their fingers in the regulatory gear ...

It belongs to the shareholders to question the "sustainability" of our banks model !

Proxinvest discovered recently at a conference of the French SIF (FIR) and thanks to the CEO of the French cilvil servants pension fund ERAFP Philippe Desfossés a quite challenging and refreshing innovation, in clear contrast with the recent decision of the French Parliament to generalize the double voting right as default regime in France.

This financial innovation has been designed by Patrick Bolton, Columbia University, and Frédéric Samama, SWF Research Initiative and Amundi and described in the included article of the Journal of Applied Finance.

In two words a serious weapon for encouraging investment stability without harming the “one share one vote” principle, a fair instrument (unlike double voting rights and increased dividend based on company share registers) for this basic over-water warrant for all shareholders is to be called after three or four years based on the ISIN code and on no other register, a superb and efficient deterrent against shares lending by funds.

At an invitation of Proxinvest fourthy investors gathered to hear Philippe Desfossés and one of the two inventors , and Amundi senior officr, Frédéric Samama.

The announced entry of Dongfeng and of the French State as shareholdesr or Peugeot should be based on a capital increase stock price of EUR 7.50 euro, while the share is currently priced above Euro 12. .

The conditions released on February 18 th. are not perfectly clear and they where only available on the Dongfend site.

Bothe Dongfeng and the Chinese Government would sunscribe at this pice of EUR 7,50 EUR, nt 140 000 shares and committing for another r 25 000 share at market price. This would bring 1.8 billion in cash. Then each current shareholder would receive a Wwrrant at EUR 7.5 for 30% of his shares which should bring another EUR 800 Million more the addition Billion is expected from the public capital increase at market price...

Investors will be well advised to balance the strategic benefits to be expected from such a venture and, if not convinced, they should clearly resist and oppose to a deal in which the State and investment bankers once again would make their meal with the minority shareholders owned good.

PhiTrust Active Investors, the activist French Goverannce engagement fund will attempt to file external resolutions to the 2014 General Meetings of these four companies, each being led by a Chairman/CEO.

Subsequent to their contacts with the Chairmen of the Board of Directors of these listed companies, and after discussing the issue with several institutional investors, the Board of the Phitrust fund decided that the separation of powers was the most important topic to tackle at the four following companies :

ACCOR: the newly appointed Chairman/CEO (as of 2014) was already an influential shareholder for several years, and the strategy he helped implement has not borne fruit.

RENAULT: after the departures of the "second in command" of both Renault and Nissan, the issue of power centralisation has become increasingly important to shareholders.

SAFRAN: the refusal of the Board of Directors to take into account the shareholders' vote on items related to the Chairman/CEO's compensation is among the issues which lead to the encouragement of the company to return to the organisational management structure that prevailed prior to 2011.

SOCIETE GENERALE: the recent position taken by French banking regulator ACPR (independent authority linked to the Bank of France) asking French banks to apply European rules regarding the separation of powers, calls attention to Société Générale's current governance structure.

Phitrust maintains that such the confusion of powers implies a risk for the shareholders and invite investors to file on its sitethe resolutions and if needed to request the necessary elements allowing to participate in these initiatives.

15 December 2013

French banks prefer conflicts of interests and shame than reforms

While the Governor of the Bank of France boasted in July 2012 that no French bank was involved in the interest rates manipulation scandal, Société Générale has just been fined for 446 million euros by the E.C. Competition Authorities. In the same inquiry a procedure has been initiated against Crédit Agricole.

Yet the dispute chapter page 259-261 of the Annual Report of Société Générale ! for the 2012 General provisionnait € 300 million in other cases , said not a word of this investigation by the competition services of the European Commission ( nor folders educated by the AMF and since then has given conviction) ...

Note that the more transparent Crédit Agricole who has not been convicted to date, recognized him having " received requests for information from various authorities in the context of investigations concerning both the determining of intereste rates on several currencies and an certain other market indices, and other operations related to these rates and indices. "

To our knowledge the Financial Markets Authority (AMF) instrcuted no inuqiry in this area and the French government is so addicted to debt that he is quite far to meet its legal obligations as a supervisor of French banks.

But there is not always bad news , the appointment by the Chairman of the National Assembly, Claude Bartolone (PS ) of Thierry Philipponnat, CEO of the Finance Watch NGO , to serve on the panel of the AMF, is clearly good news for investors and shareholders.

This former manager of Amnesty International, also a former banker of BFCE, Exane Paris, UBS and BNP Paribas is General Secretary of Finance Watch, a non -governmental organization specializing in "financial regulation for the service of companies and the real economy, not speculation."

The AMF College is the main decision-making body of the french markets authority AMF . It comprises 16 members (including the chairman , Gérard Rameix, a former member of Proxinvest Consulative Committte. The members of the College term of office is of five years, renewable once . The AMF College is renewed by half every thirty months.

4 December 2013

Bernard Charlès, Proxinvest Top 2012 CEO pay, is quite right...

Bernard Charlès, the CEO of software champion Dassault Systèmes and the champion of our French 2012 CEO pay survey is quite right to alarm in an interview in Le Monde about the mad French taxation on equity investments.

"If I can not distribute plots of land, that is to say, a share capital of the company, I will leave. " Without specifying if he speaks of him or his firm ...

It belongs not only to the CEO but mosttly to the shareholders who distribute these "plots" if the form of bonus shares or options. But Bernard Charles rightly points " the extremely high French taxes on capital, stock options and free shares ." For a free share of the capital remitted to en employee, inn addditionto the purchase cost or the dilution, " the company and the employee will have to pay in taxes and taxes up to 80 % of its value , it is not bearable ."

Not only our socialists Ministers have done this, the Sarkozy era contributed as well. " Cease fire ! " already cried Jean-Claude Sobel in an excellent in Les Echos of November 2012 .

For the remittance of such share related advantages the employer's contribution tripled in two years to 30% against 10% and the employee contribution was quadrupled from 2.5% to 10 % ( a "social" contribution without any social compensation for the contributors ) .

At the end of 2014 , the collection of the State's =taxation on share related plans has become such that these could be considered by Proxinvest as abnormal management act .

Bernard Charles is possibly overpaid with his € 15 million package, but he is clearly right to emphasize the danger to overtax the French digital secgment. Our entire economy is in danger when government and officials ignore the risk attached to any equity investment, the engagement of its shareholders and wehn they sabotage the fair involvement of employees in the companies capital.

5 November 2013

Proxinvest last report on french CEO compensations

Shareholders of the largest French listed companies will now vote in 2014 on executive compensation following the amendment to the AFEP-MEDEF corporate governance code. Proxinvest the French proxy advisor just published itse fifteenth consecutive report on executive compensation.

The analysis of the remunerations granted for the fiscal 2012 year indicates that the average total compensation of executive chairmen of the 120 top listed French companies rose by 2.4 % in 2012 and reached € 2,839,000. Adjusted for special items such as severance pay they rose by 6.3 %.

Among them, the CAC 40 CEOs, however, exercised due restraint in the context of the presidential election adding tax or regulatory pressure. Their average compensation passed under the € four million line to € 3,968,000 (-6.3%). The top executives of the 80 following companies (SBF 120 companies not included in the CAC 40 index) have however received very significant pay raises (+9.3 %).

Thirteen CEOs in 2012 and 2011 exceeded the remuneration ceiling of 240 official French minimum wage, currently € 4.7 million, retained by Proxinvest as socially acceptable maximum.

Bernard Charlès, the CEO of Dassault Systèmes, is this year's top earner with a total € 14.9 million (+36%) remuneration. Carlos Ghosn, the CEO of Renault-Nissan, is second to € 13.4 million. The CEO and owner of Christian Dior group, LVMH, Bernard Arnault, is at the third place with € 9.5 million at LVMH only.

Beyond these quantums also appears the question of the relationship with the performance. Proxinvest observes that the relationship between performance in the medium to long term business and compensation provided to executives is clearly insufficient. Only 9% of the total compensation of executive chairmen of the SBF 120 is based on performance conditions measured over a minimum of three full years (12% in 2011). This lack of link between pay and long-term performance is a concern for investors who seem to suggest to the directors and compensation committees to reduce the fixed annual compensation and bonuses paid in cash in favor of a truly long-term performance lined compensation using economic, financial and ESG criteria.

On fixed remuneration too many Boards of directors fail to explain to shareholders the reasons for increases in fixed remuneration while the average fixed remuneration of the SBF 120 CEOs has increased significantly faster than inflation since 2006.

In a favorable stock market environment (CAC 40:+15 % in 2012) but disappointing results showing cumulative net income down by 27 % (as computed by Investir), the annual variable compensation does not drop in the CAC 40 index and even increases by 5 % for the SBF 80 companies.

These annual bonuses remain at a high level (120% fixed in the CAC 40) and appear hardly justified as the rate of achievement for the criteria underlying these variable remunerations are only in rare exemplary cases fully disclosed (e.g. Essilor International, Teleperformance).

Finally, the share related remuneration (options, shares or instruments indexed to shares) increased by 7% in the SBF 120. This form of compensation based on value creation over the long term is the best alternative to disputed short-term compensations. Proxinvest’s and ECGS voting policies continues to require an exemplary level of transparency and the use of demanding verifiable performance criteria measured on a minimum of three years.

Proxinvest observed the development of multiple new innovative compensation forms (deferred bonus, deferred bonus shares, synthetic multi variables remuneration ) for which full transparency is needed, as it is for the disputed indirect remuneration practices using special holding companies or related party transactions.

The report also examines compensation for chairmen and non-executive directors. In some cases the Chairman or Vice-Chairman is given additional responsibilities specific to their normal duties. These payments therefore clearly deserve to be approved by the general meeting, according to Articles L225- 38 and L225 -46 of the Commercial Code.

The top French Chairmen are paid the equivalent of 8.6 times the pay of their fellow directors. These will have received a token increase of 4% for a total of € 65 million for the year

16 October 2013

Christian Dior: a reference in French code compliance!

Christian Dior, the luxury company which gathers each fall as shareholders at the prestigious Carousel of le Louvre, tends to take it easy with its compliance to the French reference code.

Proxinvest considers the eleven members of its Board as not free of potential conflicts of interest, while the company considers six of these as independent.

This is for instance the case of Ségolène Gallienne, the daughter of Albert Frère, called independent director "despite having served on the Board of Directors of Château Cheval Blanc, part of the LVMH group ", while she is also a Communication Director for Dior Fine Jewelry, and the Annual Report of the company does not specify any existing ownership links between Groupe Arnault and the Frère family Belholding Belgium a holding of the Albert Frère family, reported to hold 18.08 % in the Groupe Arnault. In addition, Delphine Arnault, the daugther of Bernard, sits on the Board of M6 chaired by Albert Frère...

We smiled reading that " Mr. Eric Guerlain should be considered, taking into account personal circumstances, as an independent member notwithstanding his membership on the Board of Directors of the Company for more than twelve years and his tenure on the Board of Guerlain, a unit of LVMH ..."

Besides Christian Dior still does not give any details on the consulting contract of € 505,716 signed between the group and its former CF0, Denis Dalibot, representative of Arnault SAS for Belgium and director of a dozen of the Arnault Group subsidiaries.

In recent years this related party agreement for consulting services was not even mentioned in the special report of related party transactions signed by reputable firms Ernst & Young and Mazars, a clear breach with the article L 225-38 of the French Code of Commerce...

We therefore can congratulate here Eric Guerlain Chairman of the Nomination and Remuneration and Audit Committee for his excellent compliance job! Also in accordance with the AFEP / MEDEF code which the company explicitly refers to, the compensations due and allocated for the year ended April 30, 2013 to the Chairman and to the CEO is proposed for a non-binding vote.

To make its recommendation, Proxinvest reviewed 52 control items in four areas: Transparency, Quantum & Structure, Alignment with Performance and Dynamics.

This first experience of "Say on Pay" should have prompted the company to a better disclosure about the remunerations paid to holding companies of the Bernard Arnault Group... The main factor for a “NO” vote is that the total amount received by Bernard Arnault taking into account its € 8 million compensation through holding companies reached a remuneration of € 11,414,039 ... far beyond the socially acceptable maximum defined by Proxinvest 240 SMIC, while the amount of the commitment made by LVMH for his complementary pension on April 30, 2013 was of € 15.7 million!

The young CEO Sydney Toledano € 1.8 million total annual compensation is much lower, but the quantitative criteria of the bonuses are not verifiable and account for only one third while another third is based on the achievement of untraceable qualitative objectives. Finally, Sidney Toledano has a non-compete clause of 24 months of gross salary in case of termination and, in the case of grants of shares, his final allocation is based on a positive trend to be observed at only one of the four criteria of your choice (current operating income, net cash from operating activities and operating investments, current operating margin Group)...

This rating is based on Proxinvest Corporate Governance guidelines and enables homogeneity, transparency and integrity and allows putting forward the best companies in terms of governance, in order to help responsible investors in their stock selection and the definition of their investment universe when it has been now unanimously recognized that risks associated to a poor governance can affect the companies’ financial performance.

On top of this ranking, Unibail-Rodamco (Real Estate) occupies the first place with a grade of A+ (256/300), rewarding its important efforts to implement and maintain good corporate governance standards for many years now.

• First, 32.5% of the CAC 40 components opted for a dissociation of the roles of chairman and CEO.

• Second, 32.5% only of those companies have a Board made of a majority of independent members.

• Third, the managements of 5 companies out of the 40 constituting the Index are protected by anti-takeover devices (“Bons Breton”, Dutch Stichting, special French legal status of “Société en Commandite par Actions” corresponding to a partnership limited by shares), raising in the meantime the issue of registered headquarters in the Netherlands or Luxembourg as anti-takeover devices where lower shareholder rights are then observed.

16.September 2013

Lessons from formally fair governance : will Bolloré, the 5% shareholder, now rule the Board ?

The Vivendi crisis launched py the public dissent of a 5% shareholder Vincent Bolloré, confims the limits of conglomerates and emphasizes the great interest of demergers. It also emphasizes that the split of functions between chaiman an CEO ought also to be real and not only cosmetic...as it finally weakens the Board at Vivendi.

The challenge from the start resulted from the 2000 "logical" proposal by Jean-Marie Messier to associate in one group the two businesses of communication channels or containers on the one hand (networks with SFR and Canal + , and films or CDs of Universal Mussic ... ) and content on the other(television production , film and music) ... Everyone agreed that a strong understanding of both the container and contents was essential for the proper management of each other. But should these be merged ?

Passed the JMM cash shortage of 2001-2002, the history of Vivendi has shown that the professional excellence of CEO Jean- Bernard Levy did not ensured a successful unique lead to this group, each division was left to leading experts ultimately constrained by a central managementy himself under the demanding supervision of Jean -René Fourtou the former CEO of Aventis... Two floors of supervision were not helpful to unite the energies.

Jean-François Dubos, former Secretary, assured therefore acting for over a year ... at the request of Jean -René Fourtou after Levy's departure, while Vivendi share is now is at its lowest for 13 years. And while pieces were officially for sale, possibly for saving considerations or because of the opposition of Bolloré the dissociation of the companies were apparently not seriously considered...

Vincent Bolloré, who had appropriately merged its thematic channels in exchange for a position of 5% shareholder, publicly and succesfully opposed the appointment of a new German CEO leader approached by Fourtou , Thomas Rabe, the former Bertelsmann's CEO. According to the press Bolloré wants to replace as soon Jean-René Fourtou in his boots of Almighty monitoring Chairman ...and succesfully obtained teh vice-chairmanship.

For Proxinvest there where three lessons :

First, the separation of functions at the top must be real and not apparent, the strategy should be proposed by the Board and not by the Board or its Chairman.

Second, the differing business models should not be unnecessarily merged and the spin-off of assets, as the recent Accor-Edenred and Carrefour-Dia demonstrated is inexpensive and efficient for shareholders, when the split of business is real.

Third Bolloré takes today credit for a demerger he still opposed on Monday this week. he is clearly attempting to fully control Vivendi and abuse the company as it abuses Havas with uncontrolled remated party transcations. Shareholdesr of Vivendi should beware

As highlighted by the French press there is a clear inability of this Chairman & CEO to share decisions and at least to appoint a number two able to replace him in case of failure.

"The problem of governance at Renault is getting worse. Carlos Ghosn is already CEO of Nissan, AvtoVAZ, the JV purchase RNPO, he did not have time to cumulate these tasks. Renault here must have a real pilot who better defend its interests in the Alliance with Nissan. This new reorganization clearly is not the way, " says Jean-François Nanda, Deputy Steward central CFDT Renault quioted by daily Les Echos.

This is, for Proxinvest a lasting significant risk to the market value of Renault as for the future and integrity of the international industrial group

LVMH will not appeal against its conviction by the AMF : a good point for the French regulator.

LVMH renouncing to appeal against the very complex and courageous decision of the Disciplinary Commission of the AMF is a very positive news: it consolidates the case law on compliance with shareholding disclosure thresholds and information on significant economic positions held on listed companies.

According to Le Monde, LVMH Bernard Arnault group finally decided to abandon his appeal against conviction to a fine of € 8 million in its dispute with Hermes International of which it now holds 23.1 % .

Recall that the AMF decision blamed LVMH, on the one hand , for "having issued to the public a false, inaccurate or insincere information on Hermes shares it already held , and on the other hand, not having informed the market preparation of the financial transaction to acquire a stake of more than 10% of the voting rights and 15% of the capital of Hermès. "

All this , with the active complicity of three French banking groups banks : Nexgen Capital Limited ( Natixis ") , Société Générale and Crédit Agricole CA-CIB (formerly Calyon ), the latter having, however, shown to LVMH in 2010 his opposition for lack of transparencyto the final unwinding in equity.

01 July 2013

Less accountability : French CEOs go for a not binding Say on Pay vote, while French bank censor indepenent analysts

The new 2013 version of the AFEP-MEDEF Code recommends as of this week companies to table an annual advisory vote on the individual remuneration paid to individual corporate officers. This is probably enough, but it is progress. If, on the question of the independence of directors, the Code does not progress, it retains a limit of two terms for the leaders of a large group, which is another improvement. And this code requires more rigor in explaining differences outside its recommendations ...

So we will slowly, too slowly in the right direction. But as time lost, as procrastination, to limit the liability of directors and officers facing their shareholders to waive any exemplary on wages, while it is precisely the exemplary multiple leaders and entrepreneurs such as Louis Gallois, EADS, which explains the success exemplary that allows them to survive in Europe despite the social and administrative costs exorbitant.

Meanwhile, six years after the start of the crisis, more than € 1 trillion of questionable or illiquid assets are stored in 'bad banks', we say Les Echos June 18 will require 63 years to liquidate the 266 billion euros of distressed assets grouped in Dexia, which has already cost ten billion to our tax also encumbered five billion Natixis early 2009.

It is understandable that the installed bankers do not intend to question the model that protect the taxpayers' expense. Too human.

But the shareholders of BNP Paribas and Credit Agricole be warned: these two listed companies today censor financial analysts who criticize the model and exclude their analyst conferences.

The irresponsibility of employers on their remuneration is reflected in the irresponsibility of the banks on their own accounts face to analysts and shareholders.

Proxinvest often blames major firm for not facing their esponsibilities, alas their example is often followed by small business. It is sadly the same for auditors: we will see here that the Big Four are not the only ones not to respect the law.

Medica, the SBF 120 company specializing in comprehensive care for dependent persons, refers to the MiddleNext less demanding governance code, but it also maintains illegally in our eyes, a severance and a non-competition indemnification for its CEO J. Bailet, in direct breach of Article L225-42 of the French Commercial Code.

Proxinvest has therefore recommended voting against the special RPT report but also against the renewal of the firm's auditor Constantin Associés signing jointly with Mazars, an incomplete special report on these commitments.

J. Bailet, CEO, benefits following the suspension of his employment contract of a severance payment of 18 months of full salary of reference for the 24 months prior to any termination of employment), i.e. € 495,000. But, contrary to the provisions of Article L.225-42-1, this compensation is not linked to performance conditions.

In addition a non-competition provision offers him plus 30% of the last monthly fixed salary for the 12 months from the effective date of termination of the contract is € 66,000 based on final salary, so in total € 561 000, or 20 months of his final salary.

Proxinvest, which for its part considers that severance pay shall not exceed an amount equivalent to one year's full salary compensation, draws attention to the following three breaches of legal provisions mentioned below:

These benefits are not included in the special report.

the severance pay is not subject to a performance condition ulike required by the Commercial Code (Article L.225-42-1).

these benefits have not been not subject to a vote of shareholders.

The two audit firms Constantin Associés and Mazars have however certified the accuracy of information on the remuneration as some Big Four representative would have done it: these totally neglect their duties vis-à-vis shareholders

BNP Paribas : the failure of a modest change in the articles tells us about the lack of commitment of the bank's Directors

The May 15 AGM of BNP Paribas rejected the resolution to amend the articles 13 of the by-laws, yet presented as a "simplification" of the company articles.

Proxinvest, after conducting a comparative analysis of the of the bylaws versions w , recommended to oppose. The resolution covered no significant changes except the removal of the minimum number of shares to be held by each member of the Board.

While a significant increase of the minimum investment of Directors in BNP Paribas shares to address the problem of insufficient comitment of the Directors, the Board proposed to remove this requirement. For Proxinvest it is important to require Directors to invest in shares to develop and demonstrate to all shareholders their loyal commitment, their "affectio societatis". Contrary to what the company stated the removal of such rule was in no way an "ajustment to new regulation," such change was only an option refused by shareholders.

In rejecting the resolution the shareholders of BNP Paribas remind all Directors to keep representing shareholders interests despite the natural old boy netwok game and and the so human complacency.

According to the les Echos article on the AGM, Baudouin Prot, the Chairman of BNP Paribas, reportedly told the shareholders' meeting that "all directors must hold the equivalent of one year of attendance fee in share of the company ", which corresponds the historical recommendation of Proxinvest. The company even gave this argument to professional asset management to support the resolution.

But no less than six Directors of BNP Paribas do not even hold that a year's worth of fees in shares: two directors representing the Belgian State (Emil van Broekhoven and Michel Tilmant), two employee directors (Nicole and Thierry Misson Informer ) Fields Wiecker-Miurin and ... Laurence Parisot, a so revealing ommisison by the MEDEF president.

It would be therefore appropriate for the Board to ensure enforcement of its ownn rules the rules and proposes to the General Meeting to introduce this full year requirement in the article next year

Essilor AGM : ECGS and Proxinvest call for a rotation of the audit firms

Most of the investors do not really look carefully at proposals requiring to renew auditors : during the 2012 proxy season in France, this type of proposal was approved by 98.8% of the voting rights.

However some responsible investors starts to do their best efforts to address the problem of auditors' independence and a coalition of investors led by USS was launched with the support of ECGS and Proxinvest.

In line with the recommendations of this coalition and with the ECGS voting policy, Proxinvest recommends Essilor shareholders oppose PricewaterhouseCoopers which has certified the accounts of the company for 30 years.

Proxinvest, the French partner of ECGS, also recommends opposition to the re-election of the audit firm Mazars since the non-audit fees paid to Mazars amounted to 53.7% of the audit fees on a three-year basis

In addition, the auditors failed to mention the supplementary pension granted to Hubert Sagnières in their special report on regulated related-party agreements.

10 May 2013

Sanofi : Union Activism against generous dividends but not against the generous CEO pay

The CFDT union at Sanofi has launched a creative campaign to oppose the 4.5% increasing dividend per share (third resolution) proposed by the company "while net profit was down 7% and that thousands jobs are destroyed."

Proxinvest as proxy advisor did not find recognized a major concern with this generous increase, the company being extremely profitable should return any excess cash available to its shareholders without restricting future development.

These unions have not been troubled by the generous remuneration of the CEO Christoph Viehbacher whose "fixed" pay has been increased to 2012 to 127% of the median of the CAC 40 companies, and whose total compensation, up 4.8% at € 7.5 million corresponds to 380 times the minimum wage, which exceeds by far the Proxinvest ceiling of socially acceptable CEO pay (240 times the minimum wage).

Unions that do not scream when it is the wages are increased, wages can not be reduced them, they are well advised to oppose here the interests of employment in the interests of shareholders?

Shareholders are always paid the last "if else left ", and some of them say that Sanofi treated too well for a long time its management and even its employees and this is also why the group must now cut jobs in Europe.

Europe needs shareholders to create new jobs, to finance start-up companies and global corporations can help nd later even purchase these to give them the needed scope of a global development. To buy companies one must havea strong stock sustained bay the dividend expectation of world shareholders.

The social awareness and activisme of the players mentioned above deserves to be respected: they are right to question the generosity of the Board of Sanofi, and they would do even better to consider, as do many large and small investors, all the rent situations at our largest multinational groups.

EADS has been long governed by usual Dutch company statutes and a shareholders Participation Agreement freezing 50.5% of the capital and 50.7% of the voting rights between Sogeade (Lagardère SCA and the French State), Daimler, the German and Spanish States using a common holding company EADS Participations BV exercising jointly the voting rights of the State shareholders.

This Participation Agreement amended in October 2007 provided that the Board would includes 11 members, including a chairman and an executive president, respectively of French or German nationality and jointly appointed Directors with two directors designated by Daimler, two by Sogeade, one by SEPI and four independents.

Following the drop of the participation of the controlling shareholders to 45% of the capital by the cession end of December 2012 by Daimler Benz , 15 bundled resolutions of this extraordinary general meeting provide a clause limiting the acquisition of 15% of the capital or voting rights ("Mandatory Threshold Disposal"), a repurchase of shares for cancellation up to 15% of the capital and the bundled individual election of 12 directors,

It is indeed expected that EADS buys this occasion the greater part of Lagardère shares.

Following discussions with the company, Proxinvest , the French ECGS proxy analyst, decided to recommend to oppose to these bundled resolutions for the following strategic, financial an governance grounds.

Strategic considerations:

It should be recalled here that the French private member of the Participation Agreement Lagardère demanded in the last few years to sell its shares, and that no such special conditions has been granted to his German counterpart Daimler when it sold 5% of the shares last December.

No reason, other than some window dressing of the Lagardère special redemption arrangement seems to justify to proceed in two almost equal redemption tranches which will be arbitrarily engaged or not by the Board. In other words, the ECGS Board keeps the initiative of inequitable treatment of shareholders, while nothing prevents the State shareholders to buy directly ther Lagardère shares and to resell them later.

The understandable willingness of both States to keep a direct control on the EADS management is no longer of prime strategic interest to the group engaged in a fierce international competition as both French and German States have, regardless of their position in the capital, already a significant leverage over the EADS strategy and management. They control substantial key defense orders as well as the related State supported research programs while they benefit from the national regulations concerning the vital sectors of the States and they from the projected ring-fencing of the EADS defense activities in two subsidiaries with a special governance : these facts sufficiently meets this legitimate requirement for national controls.

The introduction of the nationality clauses in the statutes on this point seemed acceptable, with regard to national interests deemed vital, even a common golden share or even two golden shares for each State the type of the GDG Suez in France. The refusal to align voting rights and control over the financial shareholders commitment appears however as a strategic weakness and a threat to other sizeable shareholders.

The reduction of capital of EADS seems indeed justified by the need for a strong capital base, as tends to demonstrate the historical moderate distribution of dividend sometimes criticized by Proxinvest with average distribution of 30% a normal situation for a growing technology company.

Financial conditions:

It should be reminded that the projected buyback should be made at market price, the acquisition of 15% of the shares at the highest historical market price creates a considerable unneeded risk. In with the previous resolution, the Board seeks shareholder authorization to reduce the company’s capital by cancellation of the purchased share up to 15% of the capital. At the current stock price of €39.90 the flat equity fund impact from cancellation of the share amounts to €27.30. the expected income per share from a repurchase of € 2.72 does not cover the yearly total funding cost of the transaction € 2.43 based of an industry P/E of 16 and of a borrowing rate of 6% , plus the equity replacement cost estimated at € 1,00 (spread over three years).

Governance conditions:

The presented legal solution of the introduction of a clause limiting acquisition of 15% not applying to the current controlling shareholders on a grandfathering ground is plainly unacceptable in the name of equality of shareholders.

The interests of European defense could make such limitation acceptable to all shareholders but the shareholder equity principle but does not, in our opinion, justify such “grandfathering”.

Electing all the directors almost all not independent in our judgment , and only one woman in bundled decisions was not necessary : it appears as an additional disgrace to the shareholders freedom.

We recall here the constant disregard shown by the chairman Arnaud Lagardère, and the six directors who did not attend the last shareholders meeting of the company. We finally recall the insider trading at EADS case finally classified by the French courts, for which case the company has supported various officers and directors who had exercises their options and tendered their shares in the context of negative warnings.

Putting the company at risk in order to please a somewhat noncontributory shareholder cannot be supported. The presentation by EADS of a not so fair deemed strategic transaction in fifteen bundled resolutions including an uneven acquisition limitation clause accompanied by the bundled election of twelve directors including only on non-independent woman is a misunderstanding of the shareholders expectations and a serious setback for the company potential.

3 March 2013

ESMA Final Report on The Proxy Advisor Industry

Expert Corporate Governance Service Ltd. (ECGS), a joint-venture of European proxy advisors, welcomes the ESMA Final Report on The Proxy Advisor Industry published on February 19th. The report confirmed there is no “market failure” related to proxy advisors’ interaction with investors and issuers in the European Union (EU) that would require regulatory intervention.

ECGS takes note that ESMA recommends that the proxy advising industry should develop an EU Code of Conduct (Code) that focuses on “identifying, disclosing and managing conflicts of interest,” and “fostering transparency to ensure the accuracy and reliability of the advice”.

ECGS as a global service is comprised of several local partners acting as experts in their local countries. ECGS welcomes the ESMA principles highlighting the importance of engagement with issuers and the consideration of local market practices.

ECGS considers that all services related to governance or voting recommendations (proxy analysis reports, proxy alerts, customized vote, responsible ownership service for institutional investors or asset managers who exercise voting rights and engagement actions), including proxy solicitation services, should be subject to similar rules of conduct.

The recommended Code should apply to all professional providers whatever their main business or capital structure (private firms, professional bodies or associations, asset managers, funds...).

Considering that all these services are targeted to end-investors, ECGS believes such a Code should make a clear distinction between the Buy Side service providers (paid by investors), and Sell Side providers (paid by issuers).

Such a Code should prevent this basic conflict of interest and prohibit any mix of income sources. The ECGS partnership has adopted this rule because ECGS believes that disclosure of conflicts of interests and conflict management are not sufficient to manage potential conflicts of interest.

Relying on proxy advisors selling governance advisory data or services to corporate clients could be damaging to Investors.

Finally, a major issue, not yet considered by ESMA, is the lack of efficiency and traceability of the voting process due to the long intermediary chain, particularly in the case of cross border voting.

ECGS will be represented in the working group and is glad to further contribute while adopting the highest standards.

3 Feburary 2013

Here's to you Guillaume Poitrinal !

Proxinvest is extremely proud to have interacted several years on governance issues with the remarquable young CEO of Europe's leading commercial real estate Unibail Rodamco, Guillaume Poitrinal, who will leave the group of he has runs for ten years quadrupling turnover, staff and the dividend.

This announcement comes on the day Unibail-Rodamco publishes a net profit of 1.45 billion euros in 2012, up 10% year on year, and net recurring profit per share up 6.7% to 9.60 euros, above expectations. Last year, while turnover increased only by 1.3%.

Poitrinal, who participated in the Strasbourg Proxinvest workshop last September, had recruited his successor Christophe Cuvillier two years ago, and he wishes to engage in a personal new business venture.

The move is exemplary, this is an entrepreneur !

Proxinvest pays also tribute without having personally known him the former CEO of the company Mr. Léon Bressler who has instilled this ethic of loyalty, exemplarity and performance for this beautiful listed group. He had likewise retired with elegance!

Congratulations, Gentlemen! We have some great CEOs in France, and those dont wait for some one else to hire them to launch their new projects !

1 February 2013

No reason to merge the chairman-CEO functions at Schneider Electric

Schneider Electric intends at the next extraordinary meeting of shareholders to merge for current CEO Pascal Tricoire the chief executive officer function with the Chairmanship of the Board currently performed by Henri Lachmann, who was obviously a defender so far of the separation of functions but sees the case as exceptional and still claims his preference for the separation of functions...

Pascal Tricoire, Chairman of the Management Board has certainly deserved, but shareholders have at least two good reasons to oppose to the confusion of functions:

The confusion of roles of executive management and of supervision is an unhealthy anomaly when any person truly responsible should accept to be controlled: only the weakness or complacent directors or dedicated servants can consent for bad reasons to this facility.

The representation of major international listed companies and their dialogue with shareholders involves a fair technical and geographical share between the two functions of supervision and direction: it belongs to the Chairman to represent, in a way as constitutional monarch, for the company investors and the general public, but it is the CEO who set the strategy for approved by the Board and conducts the needed decisions.

Not such a clever move when you know that the issue of personal investment commitment by CEOs is dear to investors.

The question of dissociation of powers comes at the time when Wansquare, little suspect of excessive criticism of top executives, questions about the CEO of Renault, " Can it Ghosn continue to run on gold? "

"While he mismanaged a fake espionage plot at the top in 2010, insisted to remain the specialist of the concealment of CEO pay information due to shareholders, Ghosn , with the costly outcome of the Renault electric car ventures, might have reached the limits of the excellent strategy of his predecessor.

Precisely the type of situation that, without any insult to Pascal Tricoire, we want to avoid in the future of Schneider Electric.

Proxinvest published on December 11 its annual CEO Pay survey. After a sharp 33% rise observed for 2010 the average total compensation of CEO of the French CAC 40 index presented another modest 4% increase at ¤ 4,246,000 for the fiscal 2011 year.

Excluding severance payments, the total average compensation of CAC 40 CEOs was down 3% for 2011 still better than the financial year marked by a country solvency crisis, a 17% decline of the CAC 40 Stock market index, and a decrease of 10% of net profits earned.

A European survey prepared by Proxinvest and its partners Expert Corporate Governance Service (ECGS) shows that the remuneration of the top executive director of 392 top listed European companies decreased slightly more (-5%) to stand at ¤ 3.7 million in 2011 ( based on a sample of 392 large European companies). The French CEOs rank in sixth place in the European comparison.

The ex-CEO of the following 80 other companies in the SBF 120 index who had seen their total compensation increased by 32% in 2010, received on average 2% less in 2011. On average a SBF 80 CEO is paid twice less than the CAC 40 CEO with 2.06 M ¤.

Proxinvest observes the continuing growth of fixed remuneration which having a multiplier effect on other long-term compensation items: CEOs of the CAC 40 index exceeded in 2011 the million euro averae fixed pay , and it confirms that their fixed average pay has been growing faster than inflation with + 9.4% in the CAC 40 since 2006, and + 18.6% for the average next 80 companies.

The annual average bonus for 2011 fell 8.6% in the CAC 40 and 10.2% in the SBF 80. . Since 2006 this average variable cash pay rose 7% for the CAC 40 and 23% for the 80 other companies of the SBF 120 index. Despite this recent decrease annual bonuses remained at a high level of 124% of the fixed pay, even exceeding the target bonus of an average 116% of the fixed pay as determined by the compensation committee at the beginning of the year. Some bonuses such as those paid by Carrefour, GDF Suez, SCOR, Peugeot, Dexia, although the latter two have finally not been accepted by their beneficiary, show that the variable is not always in line with the performance perceived by the shareholder.

Proxinvest observes a further extinction of the use of options or restricted shares dropped from 51.5% of total compensation in 2006 to 11.5% to ¤ 487,000 on average for the CAC 40 companies in 2011. Compensation in restricted shares in the CAC 40 rose from 3.7% of the total in 2006 to 15.9% at ¤ 873,000 in 2011. All these elements of share related compensation representing 55% of the average earnings in 2006 dropped significantly to a low point in 2009 and remains relatively low at 28% of the total.

Proxinvest observes a tendency for increased use of deferred cash payments paid partly in share indexed cash items, which are out of control of the general meeting of shareholders.

Proxinvest will consider as short-term item any pay element not requiring at least three years conditionality for remittance. Currently only 16% of the total remuneration of the CAC40 CEOs is based on long term performance conditions.

This lack of link between pay and long-term performance is a major concern for investors : there is an urgency for directors and compensation committees put an end to the uncontrolled rising of fixed pay or annual bonuses, and to favor of a true long-term compensation tied to performance.

As in previous years the remuneration of the mission of French non-executive chairmen is out of control of the shareholders, in defiance of the legal requirement submitting any fees and special remuneration for any director of the General Shareholders Meeting.

The authorized attendance fee in the CAC40 went from 71,000 to 70,000 ¤ while the final average amount paid was ¤ 53,844, while the average authorized amount at the 80 other companies was of ¤ 38,752 per director and the amount finally paid of ¤ 28,751.

Empower to revitalize :

Proxinvest notes that companies have much to gain from a remuneration policy better understood by their shareholders and by the general public, this is the merit of an annual AGM " Say on Pay" vote on the issue, as established now in all other European countries and the United States.

This will be the opportunity to :

• Restore the sovereignty of the shareholders meeting

• Insure a better accountability of Directors

• Tighten the investors voting policies

After consultation with its investor clients, its European partners ECGS and its Steering Committee, Proxinvest has decided for 2013 significant changes to its voting policy , in particular substantially narrowing its assessment of severance indemnification now capped at one year's compensation (instead of two years according to the AFEP-MEDEF) and limited to the only cases of a change of control of the company.

Proxinvest now requires disclosure of individual annual cost of the special pension plans. Out of respect for the CEOs of mid-cap companies, the maximum allowable rent is increased to 30% of final salary compensation instead of 20%, but the additional annual pension will now be capped for all beneficiaries at ¤ 300 000 (¤ 450 000 ¤ including maximum mandatory pension regimes).

Proxinvest will now request the application of performance criteria on share related remuneration for all members of the Executive Committee, which vesting conditions shall be measured on a minimum of three full years. Finally, to ensure a better balance in favor of long-term incentive plans (stock options, free shares), Proxinvest and its ECGS partners invite to cap these variable items at 300% of fixed remuneration :

A maximum of 150% bonus fixed for short-term;

A minimum of 150% of fixed for variable long-term.

3 November 2012

Golden parachutes are associated with under-performance

In an empirical study of golden parachutes by Lucian A. Bebchuk, Alma Cohen, and Charles Wang confirm that golden parachutes do indeed have a beneficial effect on acquisitions. They find that companies that offer such packages have a higher likelihood of both receiving an acquisition offer and being acquired, but are also associated with lower premiums in the event of an acquisition. *

GET RICH QUICK On average, they say, shareholders in companies with golden parachutes pocket larger benefits from acquisition premiums and companies that have adopted golden parachutes tend to see their valuations (relative to their industry peers) erode over time. Over 15 years these companies have lower valuation already before adopting a golden parachute, but their value declines further in the subsequent several years. "By ensuring executives of a cushy landing in the event of an acquisition, golden parachutes weaken the disciplinary force exerted by the market for corporate control."

Quite a useful case for thinking while French corporate governance practices are very tolerant for generous golden parachutes of two years of full pay, or € 4 million for each CAC 40 CEO, as defended originally by the AFEP-MEDEF Code.

The British practice is less generous, (one year of full fixed and premium pay) and the Dutch even less (one year of fixed pay only) or even recently the French public ERAFP (Etablissement de Retraite Additionnelle de la Fonction Publique) fund decided to oppose to any golden parachutes for any CEO with a full pay exceeding 100 times teh French minimum wage (€ 1 678 000€)...

The important suggested synergies failed to hide that the bulk of the expected profitability was coming from Xstrata and that the exceptional financial conditions offered to the executives, including the CEO Mick Davis, betrayed some likely deception.

A first extraordinary meeting was adjourned in July to add more serious performance conditions on the pay package while reviewing the synergies announced. Facing a risk to miss the deal, Glencore, the giant commodities trading, postponed once again on September 7th. the merger approval meeting and raised its offer for Xstrata, which now reaches $ 37 billion (€ 29.15 billion). Glencore also finally increased the proposed exchange ratio to 3.05 shares. All in 10% more for the Xstrata shareholders.

This teaches us at least two things:

Against the forces of a transaction biased by financial markets with little concern for shareholders, employees or consumers interests. The voice of investors at general meeting with the help of independent analysts like those of ECGS can pay big dividends to these clients: we have seen in recent years in cases as diverse as Portugal Telecom or Capital Shopping Centers.

Moreover, the excessive executive compensation of mercenaries generally set in the name of the alignment of interests leads often to a betrayal of the interests of shareholders. The attitude of CEOs vis a vis their own remuneration is extremely revealing of the true motives of their actions. Cave Canem, wolverines rarely respect their shareholders.

24 July 2012

A MESSAGE FROM VIVENDI ON THE PARACHUTE PAID TO FORMER CEO JEAN-BERNARD LEVY

Proxinvest received a letter from the current Vivendi CEO about our recent comment on the departure’s conditions of Jean Bernard Lévy and which we publish as requested.

We had called as "coquette", or "cozy", in a news of July 5, 2012 the departure benefits offered to former CEO of Vivendi and of its subsidiary SFR, Jean Bernard Levy, 57, recently dismissed.

The new CEO, Jean-Francois Dubos, wrote courteously to Proxinvest July 13, supporting that our July 5 articlecontained "errors and inaccurate statements". We have wanted to review them very precisely hereunder.

Our calculation of the full "departing gifts" adding to a total amount of € 10 million for Jean Bernard Levy was not disputed:

• six months of base compensation plus one month per year of seniority in the Group beginning in 2002, i.e. 16 months of the last fixed and variable compensation or € 3,888,000.

• the benefit of all its stock options and performance shares, subject to the achievement of performance conditions relating to them. This benefit is estimated by Proxinvest to € 3.4 million.

• the maintenance of the additive pension scheme: the annuity to be paid by additive Vivendi in addition to other complementary systems was estimated by Proxinvest at € 218 232 a year. The cost of this item to Vivendi is estimated by Proxinvest by more than € 3.5 million.

Vivendi blames us for seeing some inconsistencies between these payments and the AFEP MEDEF code, as it is a "forced departure". In fact, the AFEP MEDEF Code , in Recommendation 20.2.4. "Severance payments", recalls that "it is unacceptable for Managing Directors whose businesses are in a situation of failure or who themselves are failing to leave with compensation. "

And this Code further states" These performance conditions set by the Board must be demanding and not permit the recovery of an officer in the event of a forced departure due to a change of control or strategy. "

We did, in Proxinvest, not see neither very demanding performance conditions nor very clear change of strategy, and above all, in clear disagreement with President Jean-Francois Dubos, reminding the that the 2011 recovery in earnings, we maintain the subjective opinion, that there was "state of failure" since Vivendi shareholders have lost 30% of value since early 2007.

On the maintained pension plan, however, we acknowledge to President Jean-Francois Dubos a minor inaccuracy of Proxinvest who wrote that Jean-Bernard Levy will also benefits "of a hat-retirement pension fully paid by Vivendi while it has not reached the retirement age, and with the number of stock options and restricted stock in violation of AFEP-MEDEF code" .

"Forgive us, dear Mr. President, JBL will certainly benefit "in all cases" of his additive pension plan if he is crazy enough to take an employee job until his employee date of formal retirement, instead of getting paid by advisory fees... Only in case of such new salaried job, Vivendi actually would save the cost of hat pension payment!

Did finally Vivendi as states President Dubos, "scrupulously respected" the Code which states clearly: "The payment supplementary pension benefits is subject to the condition that the beneficiary be a Director or employee of the company when he asserts his pension rights under the rules in force. "

So please tell us, dear Mr. President Dubos, where hide our other errors or inaccurate information?

10 June 2012

A mile stone: the French State limits CEO pay and vote against special parachute for the Air France-KLM CEO

Proxinvest had recommended to its investor to oppose the resolution 4 of the General Assembly of Air France-KLM May 31, 2012 and this AGM was a mile staone as the State at last acted in line with its public stances andn assumed its role on the sensitive issue of CEO compensation.

An anecdote in passing: as a registered shareholder Proxinvest, entering the meeting, was informed that it had given "blank power to the Chairman"! This being totally excluded by Proxinvest principels and policies, who was not the only one in that situation, led us to investigate. By dint of insistence and after verification, it was confirmed after 40min that Proxinvest had properly filled its ballot and had in no way gave a blank power to the Chairman. The registrar manager then explained that if the ballot was not perfectly black ticked or that the forma had any imperfection its votes were automatically remitted to the company Chairman ! Proxinvest will write to the AMF on this a worrysome methods of registrars (here Société Générale Global Services) to giving to the company Chairman the voting rights of any proxy qualified as illegible.

The AGM of Air France-KLM, held on Thursday, May 31, 2012 at the Carrousel du Louvre, has enjoyed strong media interest with over 800 attendees, but the main item was certainly that the State, the main shareholder with 16.1% voting rights, had indicated its opposition to the approval of the compensation remitted to thye dismissed CEO Pierre-Henri Gourgeon of around € 1,525,000.

Chairman Jean-Cyril Spinetta, facing 31 written questions, announced that the board had decided to halve the half of Directors fees and committed his personal not to exceed € 200 000 despite his new responsibilities and changes in its status as CEO of Air France-KLM. This attitude was warmly applauded by the public. But on the issue of the special non-competition of 400 000 € paid to Pierre-Henri Gourgeon, Jean-Cyril Spinetta defended that the council had acted fairly and reasonably, that it was common practice for managers at this level.

A shareholder opposed the example of Louis Gallois former CEO of EADS who just had forsaken any special pensionand non-competition indemnification.

This intervention was followed by that of a retired employee of group: "Why should we pay Mr. Gourgeon to act as an honest man to the group he has served for over three years and not as a thug? "

For Proxinvest, the amount of this clause had little justification as the payment of € 1,125,000 made by the Board under an "additional special remuneration given the unpredictability and the anticipated termination of Pierre-Henri Gourgeon. " This allowance did not meet the AFEP / MEDEF as was also observed by an employee of the company at the AGM. The response of Jean-Cyril Spinetta was that this amount was below the amount of two years of fixed salary and variable which "should have been paid for premature departure." This response was greeted by a noisy opposition of the public and the resolution was rejected by 78.8% of voters.

The Board renewal resolutions as a result came under criticism from shareholders. The reappointment of Jean-Francois Dehecq presenetd the worst score with only 74.1% of votes, closely followed by the appointment of teh new CEO, Alexandre De Juniac, with only 79.62% in favor. Proxinvest had advised his clients to oppose both resolutions under the absence of a majority of independent members at the Board, and even the renewal of Leo Van Wijk obtained only 80.57% of votes in favor.

1 June 2012

CASE REMINDER

In addition to the compensation of non-competition € 400 000, the board of directors of Air France-KLM had granted an "additional remuneration" exceptional € 1,125,000 "given the unpredictability and anticipated the termination of Mr. Gourgeon "(source: reference Air France-KLM - page 26). The company said the agreement does not correspond to deferred compensation, it was not subject to approval by the general meeting of shareholders as provided by the TEPA Act ...

Neither the spirit of the TEPA Act nor the erecommendations of the AFEP-MEDEF code were respected and Proxinvest invited the French State to establish a clear legislative framework and specific guidance to requiring prior approval of the general meeting of shareholders on all elements of compensation offered to executives.

In the eyes of Proxinvest this compensation was not acceptable to shareholders, ruined by the division by 4 of the value of their investment in ten years, nor for employees sharehodlers forced to endure the efforts of the conservation plan required.

Proxinvest recommends that Boards of directors :

• include a non competition commitment from the start of any contract and for a moderate amount of compensation;

• Refuse any supplementary payment for MD taking its pension and receiving a supplementary pension plan (the case of Pierre-Henri Gourgeon);

• not to offer any double severance payments to MD's in case of dismissal without criminal cause: once based of the company normal contractual provisions and another one time as supplementary mechanism of severance.

JP Morgan quarterly loss of 2 billion dollars announced May 10 by Jamie Dimon, CEO of the most conservative and well-respected U.S. bank, following the annoucment of further expected losses at Dexia this year following the 11.5 billion shareholders blood bath for 2011, reopens the question of the urgent necessity to split banking.

Dexia announced on MAy 9th. a net loss of 431 million euros for the first three months of the year, shareholders hold now Dexia shares worth 0.18 euros which represents a market capitalization of 350 million euros, less a thousandth of its balance sheet, which is weighting currently around 400 billion euros. At Dexia, whose board of directors unanimously threw money away by paying Pierre Mariani, the friend of President Sarkozy and BNP Paribas, more than € 1.2 million euros for 2011, " function premium" included there no more than managing a bankruptcy. Bankers remain all fooolish about pay and the appointment of Karel De Boeck, former Belgian CEO of Fortis, as Dexia Director and perhaps CEO in place of Pierre Mariani is just miserable national politics on a well paid job.

The JP Morgan brokerage losses "could still cost one billion dollars or more" and "the risk will remain for several quarters." It is especially astounding that JP Morgan boss admitted that he discovered these risks following a Wall Street Journal in early April, from rumors at the London City on massive positions taken by a French trader of the bank, Bruno Michel Iksil, dubbed the "whale of London."

After the Crédit Lyonnais, Kerviel' Société Générale, Madoff' UBS, Natixis, bankrupcies in Germany and the UK waiting for further Spanish and othe bankruptcies to come, the inability of the best universal bank executives to see the whale that lurks in their own accounts should lead every honest man to end this dangerous model which we blame since fifteen years.

It is hardly surprising that shareholders refuse to approve the egregious pay offered by complacent Boards to CEOs, be they recognized as excellent managers, such as here Denis Kessler of Scor, Franck Riboud of Danone and Jean-Pascal Tricoire of Schneider Electric or be they clearly questionable for their industrial and stock performance, such as here the CEOs of Renault, Vivendi, Carrefour or Dexia...

It is most revealing that CEO remuneration paid at universal banks be in the crosshairs, since, according to our analysis, it is the very model of universal banking that have generated not only the economic crisis but also these chronic abuses which provoke hatred of the general public.

Proxinvest and its ECGS partners have invited shareholders to vote against excessive executive compensation at Banco Santander, Unicredit, UBS, Barclays or Citigroup. In France the long awaited reform of the Chairman & CEO regime at Société Générale is actively proposed by Proxinvest engagement partner Phitrust with its famous open fund PROXY ACTIVE INVESTORS.

ECGS also advocates for a mobilisation in Italy against the Board of UNICREDIT to obtain a refund of some € 18 excess overpaid to former CEO Alessandro Profumo, an initiative launched by our partner Frontis Governance in Rome and registered on the UNPRI, the UN official responsible investment engagement site.

ECGS Swiss partner, Ethos, just launched a new offensive against the approval of the bonuses at UBS and the grant of a four million Swiss Francs bonus to the CEO .

In the UK the Barclays AGM was expected to be so tense that the Board added a new condition to the deferred part of the variable remuneration of its CEO Bob Diamond and CFO Chris Lucas. One half of the £ 2,7 million three years deferred bonus ans will only be paid if the ROE exceeds the cost of capital 11,5% threshold.

For the first time a compensation plan at a large bank has also just been rejected United States : The Citigroup Board had recommended approval of a fee of $ 15 million in total for Vikram Pandit this year, against $ 1 in 2010 and 128,751 dollar in 2009 while three other officers for 2011 were to receive between 11 and 13 million dollar each. But 55% of the shareholders of Citigroup voted on April 17 against the pay plan or abstained, possibly on recommendations of the voting advisory firms including the partner of ECGS in Montreal GIR (see hereunder the GRI voting recommendation on the item 4 of the Citigroup general meeting).

Executive compensation is clearly no longer a taboo for large institutional investors, as demonstrated this year the big pension fund officials ERAFP. This is a good news that we have expected for too long.

9 April 2012

Hot picks for the 2012 season?

The highlights of shareholders meetings this year in Europe?

It's a safe bet that the 2012 season, an election year if any, will provide opportunities for milestones at shareholders meetings, often simply the consequences of careless disregard of certain top management for the" nation of shareholders " as for the nations of employees and consumers.

Our major international groups seem to appreciate the quality of infrastructures, training and public aid,in short the art of living in Europe but as they dont feel yet the pressure to beg for their savings they still tend to neglect of shareholders. Some of them therefore reminded SWORD, searching tax exile in Luxembourg, that keeping with this lifestyle requires the respect of all shareholders, French or foreign, individual or institutional.

The insufficient dividend coexists often with inadequate communicationc, as in the case of Altamir Amboise listed equity fund, where another management company, Moneta, claimed with the ADAM sharehodlers association for more dividend : the stock of Altamir Amboise remains disappointingly low in half of the net asset value and shareholders have a legitimate right for a reasonnable dividend: Moneta unsuccesfully requested a dividend of € 1 , that is 30% of EPS instead of the 6% dividend proposed by Altamir Amboise.

Shareholders initiatives at Total and at Société Generale are expected to suggest to theirs Chairmen & CEO long needed governance improvements...$*

The Inter-Union Committee of Employee Savings CIES advanced two areas of focus for 2012 in his letter: "First the oil sector (Total, Shell, BP, Eon ...) for its weal environmental practices and governance ..." and the banking sector, for its uncertainties, its governance, tax havens and the social consequences of the crisis ...

As supported by the CIES diversity is welcome at the Boards, but not at the cost of a weaker independence or governance, such as cross-directorship: it will be the problem of the proposed to cross- directorship proposed by Danone Chairman and CEO, Franck Riboud, director of Renault for Mrs. Mouna Sepehri, a member of the Executive Committee and Director of Renault Delegate at the Presidency of Renault SAS (sic). The renewals Anne Lauvergeon at Total and of MM. Patrick Artus Bertrand Collomb, and Pébereau will also be problematic.

Publicis must have made Sarkozy mad for the issue of excessive CEO came loudly in the press when the differed bonus of 16 M€ for the CEO of Publicis was made public.

This differed bonus was hidden from 2003 until 2008, and its amounts shocks. The same issue of CEO pay will hit at Sanofi, Renault, Carrefour and Havas. The chairman and CEO of L'Oreal, who relinquished half of his stock options grant for 2010 with intrinsic value was already of one million euros and much higher time value, should have won a deserved peace, unless his new restricted shares grants create a shock.

It remains that the Europeans shareholders are demanding a real long term duration of the performance conditions applicable to the now very fashionable bonus shares and a better disclosure of complimentary pensions.

Proxinvest’s annual study on general meetings finds a decrease of the number of shareholders participating with a lower average protest on resolutions. Nevertheless, French shareholders are still some of the most critical compared with their European counterparts with a level of opposition averaging 5.9% at companies within the main index, CAC 40 (6.3% in 2010). The level of opposition is of 4.79% at companies of the SBF 250, the index for smaller capitalisations, compared with 5% in 2010, 4.6% in 2009 and 4.1% in 2008. The number of resolutions rejected despite the support of the Board which had reached a record of 64 in 2010, falls to 44 rejected proposals in 2011, less than in 2007. Shareholders primarily criticised anti-takeover measures with a level of opposition on average reaching 35.3%. During the year, there were 2 notable rejections at Essilor International and Publicis Groupe. Shareholders also managed to reject resolution where they are deprived from pre-emptive rights at 21 companies including Air France-KLM, GFI Informatique, Publicis Groupe, Rubis, Saft Groupe, and SOI TEC. Shareholders now hesitate less for voting against Directors which resulted in 7 rejected elections in 2011, notably at Altran Technologies or Gascogne. We also noted a more serious control over incentive schemes including share or option plans with 7 rejected resolutions including Saft Groupe, Seb, Rubis and Ubisoft Entertainment. Shareholders have also reflected their concerns within regulated related-party agreements reported in the special auditors report especially when they comprised a differed element of remuneration for Executives (Alten, César, Delachaux, Groupe Gorgé, Risc Group, Theolia).

The number of shareholders proposals such as the external resolutions proposed at GDF Suez, Safran or Total, which already fell from 62 to 24 in 2010, decreases further in 2011 to 12 initiatives only. The level of external proposals in France is going back towards the shy year of 2005 that saw 11 filed resolutions only. The very first environmental resolution in France was not inserted on the meeting agenda by the Board of Total. The proposal led by Phitrust Active Investors required more information on the exploitation of oil sands in Alberta, Canada. Proxinvest regrets the need for legal procedures in order to force the filing of external resolutions at general meetings as seen at Total, Lagardère or Société Générale over the last two years.

Voting advisory services are more and more crucial to serve a responsible ownership. Proxinvest, Managing Partner of Expert Corporate Governance Service (ECGS), is welcoming Frontis Governance, the reference point for institutional investors in Italy, among partnership of local independent experts focusing the biggest European capitalisations. Following the recommendations from the financial authority (AMF) on proxy voting agencies, Proxinvest has created a Steering Committee comprising fourteen members with extensive experience headed by Dominique Biedermann, Executive Director of Ethos Services. Proxinvest has submitted its 2012 voting policy to the committee for consultation. The new policy will particularly be stringent on the separation of the roles of Chairman and CEO, the control over regulated related-party agreements as well as executive remuneration.

A working group on general meetings has been created at l’AMF and is chaired by Mr Olivier Poupart-Lafarge. The group is examining related-party agreements, electronic voting and the conduct of general meetings. Shareholders should ensure that their rights are respected as a source of value for issuers.

Most issuers are better prepared to listen to their stakeholders today and show a better communication facing shareholders’ eyes that are becoming sharper and sharper and Proxinvest notes some substantial improvements in governance. It should not be forgotten that the local governance code (AFEP-MEDEF code) is written by employers’ bodies only. Therefore, improvements in French governance might be linked to auto-regulation. Views still diverge, for example regarding the combination of the Chairman and CEO which management favours. In addition, French management are opposed to a ‘Say on Pay’ contrary to what is now a norm in Europe and the U.S.. Executive remuneration in French banks is published late and extremely difficult to assess due to the lack of transparency as seen in Société Générale report as well as with BNP Paribas.

18 November 2011

ECGS responses to the Consob’s public consultation on Directors’ remuneration transparency

"ECGS congratulates Consob as all proposed changes move into the right direction, encouraging issuers to a greater and more detailed disclosure of all remuneration components."

Together with its new local partner in Roma Frontis Governance, ECGS approves the adoption of Say on Pay vote in Italy and suggests further changes needed to imsure a fair treatment of all shareholders at every investee company. In particular, ECGS provided comments on: disclosure procedures, detailed information on maximum amount variable remuneration might reach, independence of Remuneration Committees’ advisors, bundled resolutions including Directors’ appointment and remuneration, binding shareholders vote on remuneration policies.

Actually France lags far behind : the "Say On pay" vote has spread now all-over the world while French companies still escape any control of the shareholders on CEO bonuses. Say on Pay started in the UK(2002), then Australia (2004), Nederlands (2004), Sweden (2006), Norway (2007), Spain (2008) United States, Belgium and Germany (2011) while Swiss and Canadian companies have voluntarily introduced the vote.

Eurofins Scientific SE, a brilliant and profitable bio-tech analytical services with a large share of its sales in Europe - its turnover in both Germany and Scandinavia is already higher than its French sales - moved several years ago to the legal status of European company. Its top management staff have already moved the headquarters from Nantes to Brussels.

The justification offered this year by the company to transfer its nationality in Luxembourg sounds like a tautology: EUROFINS "has already reorganized the corporate structure of the Group around a holding company by industry, each of which is located at Luxembourg, it appears entirely consistent with the structure of the Group today to locate the parent company, Eurofins Scientific SE, in the same country. In addition, over 80% of sales of Eurofins Scientific SE is generated outside France. Faced with these findings, the Board considered it in the interest of the Eurofins Scientific Group to transfer the registered office in Luxembourg"...

Shareholders will regret that the company does not dare to make clear the real reasons of this transfer to Luxembourg. In a similar case last year the British materials group Wolseley plc. at least offered to its shareholders the precise estimated positive fiscal impact of its transfer in Jersey and Switzerland.

The Eurofins Scientific decision appears to be opportunistic and authoritarian: its announces a clear renunciation to the scientific roots of the company in Nantes. Worst it seem to ignores civil society and if each successful company had to move its future abroad no one would ever pay for the academic training in sciences to which Eurofins Scientific's owes its success of today. Besides Luxembourg is not only a tax heaven, it shows also weak corporate governance requirements, the company intends to replace its double voting rights by special similar unequal rights certificates...

At this stage, as the company only presents its usual "go multinational", " business is business" attitude, we believe that shareholders should oppose to this destructive decision for the long term value creation.

8 September 2011

The stock exchange is the sick lung of our economy

- Editorial by Pierre-Henri Leroy -

As thermometer as well as barometer the equity market has maintained its reliability: in contrast, its primary function of lung of the economy is in bad shape. Indispensable distributive source of equity, the Western stock market seems anemic and brings slowly but surely our bodies to economic asphyxiation. One should not wait to treat the lung to insure re-breathing.

Number of companies and all banks who are now valued below their net worth per share of the end of 2010 and their 2001market value. Yet non-financial listed companies have little to fear directly from a solvency crisis for sovereign borrowers.

Shareholders apparently leave the stock market even as prices are more attractive than ever: from seven million individual shareholders in France fifteen years ago down to four or even three million individual shareholders.

General Eviction of individual shareholders

The eviction of individual shareholders was the consequence of the widespread pro-banking liberalism in the last three decades. On the Anglo-Saxon side came the repeal of the Glass Steagall Act and the promotion of measures inspired by banks such as the MIFID Directive favoring the wholesale equity market, discouraging the direct access of individual players. In France, "the German bank, "capitalism without real capitalists", allowed and still allows some to get rapidly rich while two million cheated shareholders were not indemnified.

An economic recovery requires trust and the key essential reconstruction item will be the return of savings into equities. It is urgent to reform as clearly expressed shareholder representatives at the Consultation of the European Commission Governance in July 2011 a banking system which has since long closed the access to the stock market of individuals living in savings.

How to recover?

First each country should put tax payers protected universal banks before their responsibilities. Without waiting the unfair competition of banks in many competitive sectors such as real estate, management of savings, insurance should be stopped. They must, through the simple splits, focus the banks on the business of savings and credit only to revitalize these and each sector polluted by the presence of uncreative large banks.

As positive counterpart of this new discipline for the banks, opposite of that advocated by the IMF, their capital requirements should not be increased, and even recently increased requirements for the insurance industry in this area should be reconsidered. Such reserve requirements have increased credit spreads since 2008 while the withdrawal of insurers from the stock market has had a catastrophic effect on investment.

It is also urgent to upgrade more directly the indispensable role of individual shareholders, encouraging their participation and loyalty.

Some adjustments were suggested to EU rules requiring intermediaries and exchange platforms insuring the restoration of free services to depositors, such as information on prices and transactions, registration of securities for voting, confirmation of order processing and votes of shareholders, etc. ...

This also means reforming the governance of listed companies, restoring the authority of shareholders in general meeting, tighten control of regulated agreements, greater transparency and a systematic vote on CEO pay, encouraging the scrip dividend, etc.

Finally, we should make sure that shareholders be protected against abuses. We must stop protecting big business and bosses against the public of consumers or investors. The come-back of the shareholders requires the establishment of a fair process of collective court redress, a European class-action, as without criminal and civil penalties the rules of the contracts are violated, the small investors turns away.

International investors gathering in Paris for the ICGN and UNPRI conferences the week of Sept. 12 will repeat their request for better market integrity. The World Council of Churches, recently quoted by former Crédit Agricole CFO Bertrand Badré in Le Figaro, stated: "By contrast with growth development is the strategy of the embryo, it must put things in their proper place and time and ensuring respect their relations ". Our great occidental economic body lacks oxygen; better governance and the come-back of individual shareholders are the conditions of investment and employment.

15 August 2011

Renault finally discloses the 2010 Japanese compensation of Carlos Ghosn

In a late corrigendum issued on June 30 to its reference document for 2010 Renault, likely under pressure from the AMF following several Proxinvest remarks, informs that Carlos Ghosn received in Japan a 2010 pay of 982 million yen from Nissan Motors, i.e. € 9.03 million or 982 / 108.65 at the January 1, 2011 exchange rate, to be added to his Renault pay. Needless to say, under this new concern for tranparency, Renault suggests a lower yen June 30 2011 exchange rate and does not even provide the resulting amount to the reader.

Such total CEO pay of 10.27 million € for 2010 compares with the € 1.2 million figure posted earlier by Renault, an outsanding and unsanctioned make-up of factor 8 !

Thank you to the AMF. Congratulations to Carlos Ghosn for his exceptional earnings / performance ratio, and to the honourable auditors and directors of Renault for their courage and sense of responsibility.

21 June 2011

Carrefour thanks its chairman following a strong opposition vote

Following the strategic hesitation and shaking at the Board of Carrefour, Proxinvest had recommended to oppose to the reappointment of the Chairman of the Board of Directors, Amaury de Sèze.

Since joining Carrefour, Amaury de Sèze, former BNP Paribas banker, Chairman of the Board and of the Strategy Committee, totaling more than six mandates at the Board of large companies, left the company under the short term pressure from two big names known for their dynamism (Groupe Arnault and Colony associated within Blue Capital and hoding jointly 11% of the shares): this included the ouster of CEO, Jose-Luis Duran, its replacement by Lars Oloffson, then announcement of two contested spin-offs, followed by the resignation of a prestigious Director, Jean-Martin Folz, fomer CEO of Peugeot, and the firing of two top managers... The non-executive Chairman had received a fixed remuneration of € 700,000, plus fees of € 88 776, 42 times the French minimum gross annual salary (SMIC), a compensation which should but was not subject to the vote of the shareholders.

Amaury de Sèze having suffered the worst vote score among elected Directors of Carrefour, with 78.15% stightly better than the Dia special dividend and lower than the 78.4% of the efficient but unpopular Bernard Arnault, proposed that the current CEO, Lars Olofsson, become Chairman and CEO.

The proposed demerger of the discount chain Dia, whose management is located in Spain and was never integrated into the CARREFOUR purchase and logistics, was appouved in line with the Proxinvest advice. Dia's concentration in discount stores was no longer comatible with the "hypermarket re-enchantment" strategy launched by Lars Olofsson. If the consolidation of the executive and supervision functions is certainly not of good governance, the elimination of a disappointing and overpaid position of Non-Executive Chairman at least offers a saving in this critical reconstruction period for Carrefour.

1 May 2011

From Lagardère to Allianz, most inefficient cross-border voting

Inefficiencies of cross-border voting demonstrate the lack of care of the banking community for shareholders. After the Wyser-Pratte v. Lagardère case of 2010, the General Meeting of Siemens called for early May 2011 provides us with a demonstration of the inefficiency of the cross-border bankers chain used for the vote of shareholders.

Guy Wyser-Pratte, a shareholder of Lagardère had presented at the 2010 AGM of the French media and aerospace group two resolutions, one challenging the scheme of the Lagardère SCA partnership regime and another one running as candidate for election to the supervisory board. His proposal, quite justified in our eyes but rather undiplomatic, had obtained for the two resolutions the high scores of 22% and 24%. Somewhat disappointed with this honorable result, the New York arbitrageur complained to the company, then to the AMF to verify the votes outcomes of the meeting. After investigating, Wyser-Pratte, his lawyer, Eric Bernard, and the company observed that a number of votes had been either lost on the way or treated inverted by a chain of agents including the U.S. proxy firms ISS and Broadridge and the banks UBS and BNP Paribas… According to the counsel the actual score of the resolutions was 443 and 44%, and Eric Bernard demonstrates the failure of the UBS US bank to properly process the votes. In short interbank plumbing is not working properly for the cross-border vote, as all the operators perfectly know.

Voting investors such as ECGS clients must see the research report far too early before the dates of annual meetings. This is typically the case for German shareholders meetings such as Allianz. The ISS Votex and the Broadridge ProxyEdge platforms are requesting their vote at meeting date minus 21, some times 25 days before the meeting.

We believe that this is the result of a mis-interpretation from the custodians and sub-custodians using these platform, confusing the Record date (the cut-off date to register the number of shares entitled to vote) and the deadline to send the vote instruction.

Looking a the proxy card for Allianz, it is well stated that the proxy card may be received as late as the 27th of April by the issuer. There was clearly no reason for the platforms or for the chain of intermediaries to request to receive these instructions 21 days before the general meeting.

The same thing can be said for the vote at French firms wher actually the paper proxy form can be provided as late as three days before the meeting but platform and banks request twenty days. We believe that platforms and bank intermediaries make major mis-interpretations of the voting rules in Germany, France and many other countries, possibly because they are not technically able to dissociate the message regarding the voting instructions from the voting entitlement (Proxinvest had warned on this issue for many years and provided the DirectVote solution as clear solution for these big players to imitate while respecting intellectual property of the patented dissociation concept).

This at last is the basic efficient solution to the current thrombosis of the cross-border voting chain of the shareholders.

Investors and proxy firms keep worrying about this situation because it suggests also that when proxy reports are produced and delivered in a timely manner yit implies that very little time has been given to a serious analysis of the agenda items and governance issues and no time left for exchanging with the issuer and debating with investors.

1 April 2011

François Pérol, the CEO of Natixis is a conflicted figure

François Pérol BPCE and Natixis Chairman & CEO, CEO of Caisse Nationale des Caisses d'Epargne, and of the Federal Bank of Banques Populaires, also Chairman President of the French Banking Federation (FBF), the powerful bankers lobby, gives a striking example of authenticity and social responsibility.

The supervisory board of the bank just decided that his remuneration (fixed and variable) would reach 1.65 million euros for 2010. A decision that might launch again in France the fichier supprimé : www.proxinvest.fr/web/divers/Tchoutourian_RRJ_2010-3.pdf as properly anlysed by Prof. Tchoutourian of the Nantes university!

ENA graduate, former " Inspecteur des Finances, a former department head of the Treasury, and clsoe aide of Nicolas Sarkozy, François Pérol has always been a defendant universal banking. A master of finances, he led France to the banking crisis of 2008, then, to say the truth out of the crisis, and he allowed our big banks to recover.

The authenticity of the FBF chairman imptressed already when he stated over the BFM radio in January 2011 that French banks had never invested in U.S. sub-primes nor never received assistance from the tax payers...

It should be remembered that French banks, including Societe Generale and BNP Paribas had at least an exposure of € 3 billion euros in these sub-primes vehicles, a busines that earned us the most appalling mismanagement of public money in our history with a deficit doubled to 8% of GDP and a public debt reaching 82% of GDP against 55% in 1995.

It is worth recalling that in exchange for 3 billion paid by the State through the CDC into Dexia bank, BNP Paribas was able to purchase Fortis cheaply and ordrerly. It is worth recalling that when creating the BPCE group with Perol in August 2009, the State has made three billion euros by underwriting of preferred shares for BPCE allin a total of € 7.1 billion of State aid for Perol's endehavour and the refund the balance of state contributions was finally made possible in March 2011 following the expecetd recovery of the net income for 2010 to 3.6 M euros.

Accordingly François Pérol is also an example of responsibility for compensation: last year he already had tripled his salary for the more than 550 000 € in fixed part (without bonus!). This year, for 2010, he triples again ! Another demonstration of the unavoidable leap-frogging as explained in the Rapport Moral sur l'Argent dans le monde !

Everyone knows that, following the United States decision, certain countries and the European Parliament had seriously considered a € 500 000 cap on CEO compensation at banks supported by taxpayers. France Inter radio just revealed that a Brussels lobbying firm hired by Pérol did prevent the further adoption of this cap by the European parliament. Business Bridge Europe as quoted by journalist Philippe Lefébure was hired to fight against an amendment limiting to 500 000 € total euros maximum pay for teh CEO of a bank having received state support. The lobbying firm worked well no cap was longer voted, only will managing directors of these financial institutions no longer receive variable pay "without valid justification."

No worries therefore for the $ 1.1 million bonus of François Pérol BPCE CEO, will not be questioned by the French prudential supervisor ... At least the shareholders of Natixis, never compensated for the ineptitude and lies of the past, may be now concerned about the proper use of the bank's funds and the accute sense of conflict of interests of their president.

20 March 2011

14th Proxinvest report on AGMs

The Proxinvest’s annual survey on companies meetings points out the increasing criticism of shareholders.. The annual survey records for France an average refusal rate on resolutions submitted by boards among the highests in Europe: 6.3% for the CAC40 in 2010 against 5.9% in 2009 and 4.8% in 2008. For SBF250 companies it reaches 5% in 2010 against 4.6% in 2009 and 4.1% in 2008.

Rejected resolutions in France, against the Board’s recommendation, reaches the number of 64, when it was 50 in 2009 and 48 in 2008. The most controversial topics were Chairmans’ and combined Chairmen-CEOs’ elections and their salary supplements, more precisely termination payments, retirement benefits, stock-options free allocations. However, in 2010, the number of external resolutions presented by shareholders have decreased from 62 to 24. Environmental and social resolutions are still unexistant in France, rare in Europe, while well spread in the U.S.

Despite a better communication among a few issuers, those figures shows a more accurate analysis from French companies’ shareholders, who are better prepared to an active surveillance of the companies they invest in.

The increased participation during shareholder meetings slowed down: for the SBF 250 it keept increasing from 68.8% and 68.3% for the two previous years to 69.4%. However, it falls from 62.2% to 61.7% for the CAC 40. Without a real reform of online proxy voting in France, voting seems to be reaching its limits . Regarding the number of shareholders, participation rate keept being low: only 5% of CAC 40 shareholders attendedgeneral meetings in 2010.

The high contestation rate during shareholders’ meetings points out the limits of the French way of self-regulation where the code of good corporate governance is exclusively written by employers’ federations, AFEP and MEDEF, withe their favour for the Chairman unlimited powers among his Board. Holding simultaneously management and chairmanship responsabilities is being more and more criticised by investors, as only one person at the head does not seem to be the best option for shareholders and companies’ interests, while an independent non-executive chairman may be a good protection of the CEO against short-term pressures. Past cases like Vivendi, Vinci, Thomson or Alcatel and current cases like Total, Renault or Société générale show that a CEO having all powers and responsabilities often causes a weak governance or excessive compensations.

2010, like 2009, has witnessed a few cases where shareholders rights have been violated, in France where in total contrast with other countries the law has rather weaken their rights.

While most European countries adopted annual vote to fix the level of executives compensation in 2010, French shareholders have only a say on differed pay items and 2010 confirmed that large companies still refuse to put the non-executive chairmans’ compensation under the control of shareholders’ meetings these chairmen showing the highest remunerations in Europe: € 928 048 per year for the CAC 40 in 2010, against € 864 225 in 2008 and € 1 267 390 in 2007.

Some French Boards have taken the bad habit to assume a legality control of external shareholders resolution that behove normally to Justice opposing a veto on external resolution regularly submitted by shareholders ( as done bySociété Générale in 2010 about a possible separation of the chairman and CEO functions and in 2009 by Total and Sanofi Aventis on the approval of their chairman’s remuneration). However, judicial decisions against Lagardère or Total in 2010 confirmed the right of initiative for shareholders at general meetings.

While the Dodd-Frank bill in the United State was engaging a modest but real reform of its financial system and governance system, the European Union just cobbled the unbalanced financial system and has not earned back shareholders’ trust, yet necessary for investment and employment.

The French regulatory step back is particularly noticeable: when other countries are inviting shareholders to a better control of companies, France, on the contrary, has limited their rights by translating the Shareholder Rights Directive in a restrictive way. Despite the marked opposition of investors, four new articles were adopted on the 9 December to regulate strictly proxy vote and sollicitation and allow companies to contest these votes.

28 January 2011

Shares lending is still an issue : at last practical solutions

Following the demand from Proxinvest for a specialized committee on the issue of share lending the ICGN released in 2007 a report of this commitee chaired by Andrew Clearfield including a several recommendations.

In view of recent abuses observed in Europe with teh Porsche-VW and LVMH-Hermès International scandals, and taking this useful but not sufficient ICGN piece of work as a starting point Proxinvest herebyattempts to suggest a set of new solutions to the issue.

A definition of “share lending”

“Share lending” can be defined here as any practice that passes temporarily the nominal ownership or holding of a company share form one party transferring its securities to another party and promising to take them back at a later date from this other party, thereby keeping the long term economic risk of the shares.

If the general meeting of the company takes place during this lending period and unless unlikely the transaction if disclosed to the issuing company, generally the voting right will be left to this other party and no one else than the to parties might here form the transaction .

A general view on “share lending”

Share lending offer a practical solution to many market situation when investors temporarily needs to have shares of a company, the most common being the outright sale of shares or “short selling” allowing any investor to bet on a drop in the price of a security that he does not hold. Proxinvest considers that short selling while being pro-cyclical is not a misleading action toward the rest of the market community and is therefore acceptable. On the other hand, we know that share lending can be used to mislead the market or shareholders.

The concerns relating to “share lending” practices

All analysts of the governance of listed companies have observed situations of abuses related to the use of “borrowed shares” before or during the general meeting of shareholders. The use of borrowed shares by financial intermediaries before the meeting has allowed and still allows these to offer a hidden shareholding position to “creeping investors” at the capital of listed companies. As evidenced by the ICGN committee, the use of “borrowed shares” will legally allow any investor to increase its voting power by paying a fee or offering any kind of payment for the lender who forsake its voting participation to the annual meeting of shareholders. Even cases of change of control thanks to share borrowing without activating any guarantee for minority shareholders have been observed such as in the Havas 2006 situation.

As an independent voting advisor to institutional investors, we witnessed since many years the resulting conflict of interests created by the share lending income opportunity at the time of the AGM proxy voting record date. Some major institutional have admitted not to exercise the voting right in order to maximize portfolio income, a practice which appears to maximize short term gains at the expense of corporate control.

The tax arbitrage opportunities offered by the borrowing of shares allows investors positioned in tax heaven countries to avoid dividend withholding taxes by temporarily relocating in countries of lower income tax but not subject to this tougher tax withholding tax such as Luxembourg. Because of the proximity of the AGM record date and of the dividend payment date or of the dividend record date if any, such tax arbitrage penalize not only the tax income country of the issuing company; it also reduces the AGM participation as usually the bank intermediary holding the shares do not vote at the AGM any more than the tax heaven located investor.

Generally tax authorities of the issuing company would oppose to evidenced tax arbitrage : however tax heaven authorities favour the tax arbitrage while the tax authorities of the country of share borrowing intermediary see it a source of fee income for its community. Long term investors including ECGS members would consider international dividend tax arbitrage as an harmful non sustainable practice for the national community of the investor’s country.

Finally, last but not least, issuing companies themselves have been invited by intermediaries to lend shares that are held for the benefit of employees : some of these previously held in treasury stock had no voting rights and can be passed for free to a voting party voting in favor of the board officially without the company admitting any voting orientation. Some other might be sold for a fee credited to the company. In some cases the shares of employee funds might have been passed to an intermediary for a fee thereby avoiding that the employees fund be voting shares in line with public voting policy and against resolutions supported by the Board and the management.

The ICGN code has both merits and shortcomings

The ICGN Securities Lending Code of Best Practice presents one clear and substantial point in its Item 7 which states that “It is bad practice to borrow shares for the purpose of voting. Lenders and their agents, therefore, should make best endeavors to discourage such practice.”

However the ICGN code, short of strong investors support facing a community of intermediaries active in the field of share lending, did nothing more to stop this well explained “bad practice”.

The code requested in an item 3 that that lending institutional investor to “have a clear policy with respect to lending, especially insofar as it involves voting”, in its item 4 that lending policy should be mandated by the ultimate beneficial owners of an institution’s shares (which is quite impossible or theoretical in the case of open funds asset management). Finally, short of any direct measure to discourage the bad practice , the code uses the usual disclosure route in items 5 and 6 requesting investors to report the extent by which the lending activity may alter the risk characteristics of a portfolio, and separately from other investment returns, the income returns from lending .

Proxinvest recommends to stop the “bad practice”

Proxinvest believe that disclosure requirement imposed on institutional investors fell short of stopping the abuse and the temptation for preferring short term lending fee to long term corporate control benefits. Instead of making here investors and companies the victims of rogue behavior of a minority of operators, Proxinvest considers that the borrowing party and its intermediaries should be exposed to the burden of any diligence requirements and thereby making the borrowing more expensive for them. A minor side effect which many would consider as positive would be to discourage some-how short lending and dividend tax arbitrage. Because of the private “over the counter nature of these lending transactions it appears needed that market authorities or State regulators consider ruling in line with the following four recommendations :

I First Proxinvest recommendation: similar to insider trading abuses the vote of borrowed shares being strictly private only the qualification of this unfair behavior as a criminal offense associated with heavy fines could refrain from the temptation to legally cheat the market. Clearly share lending should not be penalized but a general prosecution of the voting of shorted shares would avoid the current perfectly legal abuses.

ELSE THREE ALTERNATIVE RECOMMENDATIONS

II First alternative Proxinvest recommendation: any intermediary holding share during the record date of the general meeting of a publicly listed company should be made liable to exercise voting rights in line with a «publicly released voting policy established in the long term interest of all shareholders and managed by a special third party proxy execution agent”

III Second alternative Proxinvest recommendation: any company or investors lending shares carrying a voting right should insure that the borrowing party either duly commits to vote the shares in line with the legitimate voting policy or instructions of the lender or be liable to exercise voting rights in line with a «publicly released voting policy established in the long term interest of all shareholders and managed by a special third party proxy execution agent”. IV Third alternative Proxinvest recommendation: any company or investors lending shares carrying no voting right should insure that the borrowing party be liable to exercise voting rights in line with a «publicly released voting policy established in the long term interest of all shareholders and managed by a special third party proxy execution agent”.

We believe that investors, companies and the general public could only benefit from such clear piece of regulation.

28. January 2011

A BUSY SEASON FOR PROXY ACTIVE INVESTORS

The French open fund Proxy Active Investors opens a busy season with notably there very visible engagement on Total, Société Générale and Renault.

On Total the fund could have chosen either the firm’s environmental policy or the managers compensation or the governance of the firm : its current target is the involvement of the French oil company with the climate-changing tar sands in Alberta backing The Green peace moto "Total invests in sustainable destruction." Total S.A. has already invested more than 8 billion Euros in Alberta, and is planning to invest 10 billion more in the next decade, in Alberta and Madagascar, in order to step up its oil production from tar sands to 10 per cent of its global production.

The fund will launch on Januray 21st its fist environmental resolution for the next TOTAL AGM in May.

Concerning Société Générale , the only bank in town with a unitary board and extreme defender of the classical all casino universal business banking model , Phtrust Active Investors proposes in a new external resolution to change the compay’s statutes and introduce the spit”Cahriman6CEO” governance: Finally the most popular “Shame on You” resolution from Proxy Active investors will concern car maker Renault and will target its Chairman and CEO Carlos Ghosn, for incomplete disclosure and the cover-up of some € 8 million hidden pay for the 2009 fiscal year. According to the fund’s Board The total remuneration paid to the CEO under the Renault-Nissan Alliance should have been clearly stated to the shareholders of these two companies. _ A resolution will request the Board of Directors to :

Disclose the amount of the remuneration granted by NISSAN MOTOR to the CEO of Renault, Mr Carlos Ghosn, for the financial year ended 31 December 2009.

Disclose information relating to the remuneration of RENAULT directors by NISSAN MOTOR in the group management report on the consolidation of the “Renault-Nissan Alliance” accounts, as from the 2011 financial year.

28 January 2011

The creeping venue of LVMH for 17% of Hermès International illustrates differences between the two groups

It has been revealed on October 22 that LVMH had rolled over equity swaps on Hermès International stock price and at the final settlement decided to ask for shares up to 14% and then 17% of the French most prestigious fashion and leather goods house.

LVMH had thereby a wise tactic to hide its buying position using tax heaven countries subsidiaries with the excuse of a an efficient treasury management at work, in whats pretends to be a perfectly legal process! Hermès International sees this as an unfriendly venue and request LVMH withdrawal. The AMF (Autorité des Marchés Financiers) undertakes an enquiry on the case while it is likely that little threshold declarations have been made by the banking intermediaries on their holding...

The late LVMH dislosure benefited from the application on November 1st of a long awaited new rule on derivatives and equity swaps as well as from the effect on the bankers of another very recent change in the French regulation on borrowed shares. Its Article 49 requires that any holder of shares promised for resale and exceeding 0.5% of the capital or voting rights should declare to the company and the AMF( ), the latest three trading days before the general meeting of shareholders at 0 hour the total number of shares held, the name of the seller, the date of the contact and its maturity and the attached vote convention if any, the company to publicise then the declaration according to AMF rules. Failure to proceed can deprive these shares of their voting right for the up-coming meeting and further, can allow eventually to cancel decisions made by the AGM and finally would entitle the court of Commerce, on request from the company, any sharehodler or the AMF, to deprive the failing shareholder of all its voting rights for no more than 5 years.

It is now more than ever vital for the shares-lending community to monitor carefully all existing legal and conventional disclosure thresholds at listed companies. Proxinvest and our ECGS Ltd. European joint venture has proposed since 2001 this service in order to facilitate information processing and to minimise the risk of faulty thresholds’ disclosure by asset managers. The service will help investors and intermediaries to comply with the local legal rules in terms of thresholds’ disclosure and thereby to maintain their voting rights.(For further information please call Charles Pinel at 00331 45 51 50 43) A failure to notify thresholds’ crossing can result in the loss of voting rights.

For years, Proxinvest had advocated for tougher diclosure rules and the AMF will have to test if LVMH information to the market has been faultless.

As can bee seen in the above pages, the corporate governance of both companies is far from being satisfactory, but there is something pleasant in the current defence of Bertrand Puech, the Chairman of the Emile Hermès family holding, concluding "We are not in the luxury business, we are in the quality business".

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